Why is the PSP Closed?
If Sony opened up the PSP for development, it would be great for everyone.
More people would buy the PSP
If people knew they could install the programs they wanted on the PSP without fear of Sony coming around with a new firmware to break functions, then more people would buy the PSP. Imagine if your Palm would only run software sold by Palm Inc. Or imagine your PC only running software by Microsoft. Crazy!
More PSPs = More Games
If more people own PSPs, more developers will make games for the PSP. When a development team sits down with 5 million dollars and decides to make a game, are they going to put that 5 million into a PSP game and hope that the tiny minority of people that have a PSP will buy it, or will they make a PS2 game where their audience is 50 times larger?
More games sold = more money for Sony
Sony makes money on the sale of the games. Every game sold means Sony hears little cash-register sounds. Just like UMD movies (those are worth more than Gold to Sony.) So the larger the audience is, the more potential for blockbuster games and the richer Sony becomes. Don't they want that?
Sony makes a KILLING on Memory sticks! There's a reason Memory Shticks cost more than an equivalent SD card. That extra cost goes to line Sony's dwindling profits. If people make great software for the PSP you can bet that more people will be buying memory sticks to run it off of. Even 3rd party companies have to pay royalties to Sony if they make thing Memory Stick Compatible so Sony wins anyway.
It is a bad business decision for Sony to try and break homebrew with every patch. Additional "features" such as RSS newsreaders, web browsers and email programs should come from the community while the folks at Sony spend their time trying to excite developers into making games for the dying platform.