I'll play Devil's advocate and go for the extreme solution. Please note, I do not pretend to have enough technical knowledge to even know if some of these ideas are doable.
Looking at the Wall Street Journal I think Sony is in considerable danger of losing the resources to stay flexible and in a real danger of becoming buyout bait or worse. Therefore I think a complete change of strategy is called for. In hindsight, the suggestion that the PS3 be recalled for a do-over at the start might have been a good idea but it's too late now.
Given that, I think that it must be kept as the penultimate elite gaming machine without any compromise or stripping of features. Charge whatever you have to the sell it at least as break-even. It will not ever be, in itself a money maker but at least it'll be a flagship to maintain the Sony Mystique for the future.
Then create a separate console with more modest features that can be produced competitively. Somewhat in the model of Nikon which has the D-3 series, very full featured, very elite, very expensive while they make their real money on the D90s, D300s etc which sell better because the D3 elevates the entire system. I realize that the new console would have to use some subset of the current cell design to be compatible but there must be a way to have a scaled down version capped at 720p. A lot of games are essentially that anyway and no one minds so perhaps they don't need to buy the power to play the few 1080i games.
Then for the PSx (whatever name it's given) dump the DAMN BLU RAY, it's still jacking up the cost. Basically the games would be ported over to the lower resolution (I should think relatively easy) and put on nice cheap DVDs and cost a few bucks less. The hard core will still want the REAL PS3 and the new recruit will aspire to graduate to it ASAP.
As soon as the PSx is out, kill the PS2 and start putting its library as downloadable content ala virtual console.
Then keeping the PS3 for status and to remain the gold standard, getting market share and actually cutting a profit with the PSx and leveraging the huge PS2 game library to give a huge selection you could start filling in that huge debt hole and be in a healthier position for the next go around.
Just what I'm thinking; it may be completely unworkable but a show of gimping the PS3 in desperate cost cutting measures only adds the stink of death to the system and will only hurt sales more.
