If Sony's smart, they'll hold off on the price cut as long as possible and instead focus on rejuvenating the PSP, which sounds like the strategy they're going for if the redesign rumors are true. If they can get their PSP business rolling healthily and maintain PS2 sales, those two products could prop up the entire gaming division as they work on cost reducing the PS3. The PSP's got a strong line up for the year (God of War, Wipe Out, Crisis Core, Jeanne d'Arc), so all Sony really needs is a strong redesign/price cut to get people excited about the system again. Pretty easy if you ask me especially considering current sales aren't terrible to begin with.
My Top 5:
Shadow of the Colossus, Metal Gear Solid 3, Shenmue, Skies of Arcadia, Chrono Trigger
My 2 nex-gen systems: PS3 
and Wii 
Prediction Aug '08: We see the PSP2 released fall '09. Graphically, it's basically the same as the current system. UMD drive ditched and replaced by 4-8gb on board flash memory. Other upgrades: 2nd analog nub, touchscreen, blutooth, motion sensor. Design: Flip-style or slider. Size: Think Iphone. Cost: $199. Will be profitable on day 1.
Essay Pro