The October issue of PlayStation Magazine cited unnamed sources in a report stating that Sony will launch the next generation PSP in 2007. Right now, however, it doesn't look like this will be quite what we were looking for: rather than a "proper" PSP2, Sony is apparently going to follow in Apple's footsteps and gradually upgrade the PSP's features and capabilities while keeping the price more or less the same.
The report suggests that Sony will upgrade the built-in memory from 32MB to 8GB based on memory chip industry movement; will add a built-in Eye-Toy-like camera; and will retool the UMD drive into a slot-loading drive. Naturally, the upgraded PSP will be slimmer than its predecessor.
The larger memory is expected to be used for Sony's as-yet-to-materialize scheme for downloadable games and other content. Sony's not one to kiss and tell, so odds are it'll be a little while before any hard information on the next generation PSP is known.
Report: Next Generation PSP Coming in 2007 [Next Generation]