Why did nintendo make such a huge leap from crappy 2d to full 3d when the psp came out? were they holding out?

Over so many years the Gameboy had lame graphics, then the psp was introduced with basically ps1 level graphics and nintendo suddenly pulled out the 3d and multiscreen and such. were they holding out on us for so many years when the could have made the best hand held ever, or did they not want to spend alot of money because they were pretty much really the only handheld around