IMO would Sony had released a PS2.5 at 250 Euro/USD and prematurely killed the PS2, the PS2.5 may well have outsold the Wii, cutting off some of the Wii's lowend market.
IMO luckily they didn't and I can play Super Stardust HD in all of its 1080p glory. I think the benefit would only be temporary as the console would have a much shorter lifespan.
To Sony this would mean there would be less reason to own an improved display (HDTVs) and a much smaller Blu-Ray movie install base.
I think just let the PS2 and Wii duke it out for the lowend market and the XBox 360 and PS3 fight the fight for the high end market. Compared to the PS2 the Wii has the advantage of having not to deal with market saturation for many years to come and is considered something fresh, the PS2 on the other hand has the advantage of a much larger installbase dwarfing all other console rivals and a lower entry pricing.
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