The Playstation 3 is an exceptional piece of hardware and has reached the install base to guarantee multiplat support for the rest of the generation. End of story. Sony has chosen to avoid continued hardware losses until the cost of the technology comes down and they can afford a price cut. The availability of cheaper blu-ray players this holiday, the 360 price cut to $199, and the horrid economy have all created the perfect storm.
Yet the PS3 will still end up moving a BUNCH of consoles in the 4Q of 2008. Sony isn't going anywhere though admittedly this is far from what they envisioned, I'm sure.