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Either scenario is bad at this point. If I remember correctly, they wont make a profit until the 40millionth console sold. I doubt, at this rate, they will. Sales for the system have been declining for a while, so the PS3 may very well be on it's last legs. The last place console doesn't live for very long (look at the Gamecube. It was dying in 05 and was dead though 06). Cutting price will not create long term effects and the cut will only add to the cost.

A price cut has always been a way or getting rid of products. You lower your products price if it isn't selling. The price cuts for the HD bros have been survival at best. I don't see Sony turning any profit on the PS3.