I'm not exactly sure how this will prevent piracy on the PSP, because I'm sure they could still do it, other than that is there any other reason they want to switch from UMD to Digital Distribution?
It sounds like they are being worried by the mentioning of the Onlive system as the two seem to sound similar with the internal storage but with large differences. Personally I prefer to go out and buy discs and have an actual thing to put in the machine. I'd probably change a bit of my gaming console preference if everything was downloads.