Square-Enix CEO, Yoichi Wada, in a Financial Times interview, stated that the next-gen machines (PS3 and Xbox 360) are mismatched to today's gamer and that handhelds are what is really driving the market.
"There is a new breed of gamers in the market – we have to make games for all kinds of people,” said Mr Wada, in an interview with the FT. “In the old days, we could just focus on the PlayStation or the GameBoy, but the environment has changed completely." (Source)
He goes on to say that there are too many hurdles to clear with the next-gens, namely that to get everything out of a game you need an HDTV, broadband, and a "deep knowledge of gaming."
Another reason he's saying this is because for the first time ever, the latest Dragon Quest game is being developed exclusively for the DS (previously they were made for the PS2). In other words, Square designs games for the current best selling system, whatever it is at the time, in order to appeal to the widest gaming public possible. Not a bad strategy.