From what I understand, the only thing that they're making that's not compatible with older PSP models is the "PSP Minis" which are minigames at under 100MB each, which cost less. Every full UMD game released after the PSP Go is released to retail... will be available in downloadable form. That's a good thing for those of us who have older PSPs, cuz we'll still be able to download and play new games as long as we have a big enough memory stick.
And no, the PSP Go is not just a PSP with no UMD drive, with an $80 higher pricetag. It has 16GB of internal memory. 16GB Memory Stick Pro Duo costs over $80, so for new adopters of the system, it would be worthwhile if all you planned on playing were downloadable games. The only downside is that used UMD games are cheap and fun!