I too think 250$ is a lot, but when I think about some other things, it doesn't seem like so much.
The costs associated with UMD were based on economies of scale, that is, the cost of the manufacturing plant, the materials, the negotiations with companies and such get distributed over the course of the life of the product. Say you make one UMD, that UMD equals the cost of everything required to mass produce them. We'll say 50M$. which means the profit is one game sale - 50M$= -49,999,959. If they sell 200M UMDs, the price per unit becomes 50cents. At a certain point, UMDs affect on costs is virtually nothing. At this moment in time, compared to UMDs, server costs are literally a thousand times more expensive than UMDs.
The strat involving buying the servers, is as necessary as buying the manufacturing plant, or fishing boat, or farmland for any other industry. It's a gamble, but a necessary one, especially if one wants to eventually drop prices to it's lowest possible level, something that is impossible if such facilities are simply rented out.
It's possible that Sony does have some people making bad decisions, but it's also possible that we just don't understand their business practice. People complained about the gow2 goat fiasco, and the baby commercial, and subtle product placement in virtually every movie that comes out, but it doesn't take away the fact that ps3 is selling on par with a rival that has half the upfront price and arguably a better library.
Trust me, you are a believer in DD, eventually. You are currently tied down to the tangibility of current medium. Some people like me, are not so tied down. However, I'm not saying I could do without cd cases and DVD collections, because I love those things too. But I know that there will eventually be something that replaces it, like DLC, or special artwork representations, holograms, or whatever the market decides is valuable. But at the moment, the convenience associated with DD is beyond compare. The MP3 player turned my 15 pound CD book into a ~1 pound drive. The pspgo will turn a carrying bag into a carrying "sheath". That's just my opinion though.
The casual price point will be a concern, but it will be fairly obvious that the pspgo is not the best psp, only a DIFFERENT kind of psp. PSP 3000 will still be around and will probably be 150$ with a bundled game by the time this comes out. (It's 179 now with ratchet and clank) On top of that, there will definitely be a trade in price at gamestops for people who really want to upgrade. People won't say "wtf?" They'll say "hmmm, is there a cheaper one?" and get subsequently shown the psp3k
I don't really know how much R&D costs myself. But R&D techs and think-tanks are pretty well paid, and you have to figure in hardware design, which goes through many revisions, hardware specs, and other such things. Though it may only take a month to think up all these things, professional artists and designers make 80-120$ an hour yaknow? It's all very expensive.
PS: I for one, am buying one, and I've never liked PSP. I own a ds.
