Who hasn’t walked down the street and seen people with their heads buried in their iPhones? And you know they aren’t all looking up stock quotes or making work calls. Most are playing Paper Toss or checking in with Foursquare. We even see those jealous Verizon customers with their Droids as they secretly wait for their carrier to pick up the iPhone.

Smart phones are the way technology is pointing with their layers of functionality and ever increasing capabilities. That’s why it wasn’t a surprise Thursday morning when the Wall Street Journal reported that Sony would be entering the smart phone arena. Of special interest to this particular item though is that it will be “capable of downloading and playing PlayStation games”, possibly referring to PlayStation One titles specifically.

Reported as a device that “blurs distinctions among a netbook, an e-reader and a PlayStation Portable,” they are already expecting a 2010 launch. It is possible that Sony may make a big announcement regarding this phone next week during the Games Developers Conference.

With ever declining PSP sales and the lackluster response to the PSP Go, one would think the portable device market was in trouble. Nintendo has shown with the DS and the record breaking game sales of Plants vs. Zombies on the iPhone have shown that this isn’t the case however and that Sony is just searching for its niche still.