It's no wonder the hacking community has "taken over" doing the heavy lifting for Sony.
I think it might be the other way around. Once the hacking community used the service to figure out the PS1 emulation, a lot of the motivation to buy PS1 games from the store evaporated. While I would happily pay $6 for a game I don't already own, for the games I already have in my collection I have zero issues ripping and emulating them.
That's exactly it, IMHO. Although in Japan, there are a TON more PS1 games available than there are in the US. Go figure.
And to the best of my knowledge, if you have a Windows based PC, you can now purchase PS1 games from the Playstation store on the 'normal' web and transfer them directly to your PSP. The PS3 isn't a requirement anymore.