New consoles with new capabilities come out, often containing powerful CPUs and graphics chips, and hackers and hobbyists want to have a go at writing code for them and getting them to do things other than consume titles. The manufacturers, of course, design the units so as to prevent unauthorised code running on them, primarily to protect their business model. The video-game console business model typically involves selling the consoles cheaply (often at a loss) and collecting a cut of the price of each game sold. Of course, for this to work, console makers have to strictly control what code will run on their machines, and ensure that they get a cut of every item released for them.
It's a stiflingly regressive reality, though it appears to be stable and is unlikely to go away any time soon. The alternative model (open game machines, sold at above-cost price, with anyone able to develop code for them) has been tried and failed; witness the Tapwave Zodiac PalmOS-based game machine, for example. Customers are more likely to buy cheap consoles and more expensive games for them later, in instalments, than to buy a more expensive console with cheaper software. Of course, this makes game consoles somewhat stagnant platforms (compared to, say, PCs or handhelds), though the game market seems to be able to cope with this well enough for it to be the best current business model for that kind of business.
(This ignores mobile phone J2ME games, which anyone can write and run on any compliant mobile phone without the manufacturer's blessing. Mobile phones are heavily subsidised as well, though they are subsidised by phone companies who make the money back in network usage; besides which, J2ME is a fairly weak gaming platform (for one, the low-power CPUs used in mobile phones often mean sluggish response times for navigating the internal menus, let alone games). Perhaps this will change in future.)
Nonetheless, that does not change the fact that hardware such as the PSP and Nintendo DS is tantalisingly attractive to tinkerers. When it was discovered recently that certain early Japanese PSPs could be made to execute code off a Memory Stick, a hacker community cropped up, with games, demos, utilities and ports of old console emulators popping up like mushrooms after a rain; the more recent firmware has closed off this hole, and anyone running a recent game on an old PSP will find themselves upgraded against their will.
What if, instead of locking out the hacker culture, game companies worked with it, whilst still preserving their business model? Imagine, for example, a device sold by the console manufacturer which costs about the difference between the retail and cost price of a game machine and enables it to run homebrew code. It could be a disc, a hardware dongle, or even a special cable. Unlike homebrew hacks (such as the Nintendo DS passthrough cartridge), it requires no soldering and no fabrication of circuit boards, allowing those who don't have a fetish for that sort of thing to get involved. Perhaps it comes with development tools and documentation (the GNU toolchain would be a start), or even membership of a community web site, where users can share their code. From time to time, publishers could release compilations of the best such titles, perhaps in a magazine format, doing the necessary licensing to make the releases run on standard machines.
Sony once tried something like this with their PlayStation 1; they called it "Net Yaroze", and apparently it wasn't a stellar success. I wonder whether it could be done better.
Of course, if the console makers don't throw a bone to hobbyists, makers of third-party extensions (of various levels of legality) just might; and these would be less concerned with protecting the makers' profit margins.