Backwards compatibility wouldn't be "Bad Business" had Sony been more clever with how they handled the PS3 ...
Their decision to use the Cell processor in the PS3 had as much to do with Sony looking to pay for the development of a high end DSP for use in their electonics as it did to produce a powerful processor in their console; this was heavily talked about by both Sony and IBM early on, and was one of the main reasons they made the (moronic) claims that your PS3 could share processors with other devices to produce better in-game graphics. The problem with this approach is they ended up abandoning their existing architecture in favour of an exotic architecture which wasn't well suited to emulating their old hardware.
The other problem is their console is simply too expensive to capatalize on the backwards compatibility ... Had they positioned the PS3 in the same price range as the PS2 was, a lot of people who were replacing their broken PS2 would choose to spend the extra money to get a PS3; this is exactly what happened with the PS2.
