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I'm almost certain Playstation was profitable until the PS3 came along.

But on topic yes they would be a fucking fantastic 3rd party dev; but they'd be giving up possibly the biggest brand in gaming history PLAYSTATION. Yes playstation is arguably a bigger name than Nintendo in gaming (or at least in the PS1/PS2 days).

I don't think its a good idea for Sony to give up on hardware. They could start to see a profit on the PS3 this year or within the next year or two, and next gen they could easily become profitable if they forget about making the most powerful console ever and focus on great games and innovating with things like 3D.