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twesterm said:
It's all about the image to the parents.

Wii = parents would love their kids to play that
360 = Those little shits my kid shouldn't associate with play those things.

 

Mostly this. But also Reliability. I think that's been fixed, but the quality legacy will live on forever. If they had released it with normal failure rates, I think it would have still lost to the Wii, but most people would be saying "PS3? what's that?"