I know the original VC sold terribly in the west but i believe Sega should have taken the risk and continue to develop the series for consoles.After all,the first game received very good reviews and there were lots of positive word of mouth so i think that a PS3 sequel would have sold fairly well (if Sega decided to at least try to market it for a chance.)
Like the OP said, i also believe that the move to PSP and to a school setting was a bad one and had a negative effect on a big part of their western fanbase.I think many people who missed the original VC when it first came out (probably because they didn't even knew about it thanks to zero marketing) but bought it later when its price dropped,would have loved to buy a PS3 sequel and this time they would buy it on day 1.
Unfortunately Sega chickened out and opted for an easy (and cheap) solution for the franchise's future.