Upgradable firmware was introduced to fight againts pirates or fix issues with the OS that pop up as time passes, not because it was in any way beneficial to the system from the user's perspective. Besides, it was a sign of times more than anything.
If the PSP showed anything, it showed that the lack of a dual analog setup and the subsequent workarounds are incredibly inconvenient, which is why the customers continuously complained about it. Not once and not twice I died in Monster Hunter or Metal Gear Solid not because I made an actual mistake but because I had to adjust the camera with the D-Pad, and to do that, you have to either use another finger in an awkward and often painful fashion or let go of the analog slider, thus immobilizing your character and putting it in harm's way. The weaknesses of that kind of a setup were blatantly apparent.
The NDS Classic wasn't criticized because of its size - it was criticized because it was flimsy, the screens were rather meh and the battery sucked, the size was perfectly fine. The 3DS could've easily been a little bit bigger for the sake of the second analog, and if portables have to be so small, what's the reasoning behind the XL? I would welcome a middle-ground solution with acceptable size as well as the extra feature.
As for the "more buttons" argument, a portable console is not a home console - it doesn't necessitate the same amount of buttons, and even if the designers completely run out of ideas, they can plot things on the touchscreen or add button combinations. Adding another pair of triggers would increase the bulk substantially since you physically need the console to be thicker to place them vertically. If you put them horizontally instead, right next to each other, you end up with an awkward solution like on the recent Neo Geo portable. Adding another slider does not increase the thickness of the console in any way - it would merely increase the width, and marginally at that.