After the first report from Engadget where photos of Playstation Phone were shown cries of "fake" from SCEE (Sony Computer Entertainment Europe) reached the internet. Now, obviously SCEE wouldn't directly involved with such a project, but they should know something or at least enough not to cry "fake" one would think...
Well, Engadget have now issued a further report restating their claims and adding that they have several sources confirming the scoop, some they claim really close to the project. It is apparently codenamed "Zeus", and ran on Android 2.X.
Engadget are staking their reputation on the story and I think that it's very likely that this is indeed a prototype for a Playstation Phone. Whether it is something Sony will pursue or ever enter into production is another matter entirely.