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A lot of the space in the old PS3 was actually for the heat sink/cooling fan and to allow proper air flow. If you see one disassembled you'll understand.

The original 90nm CPU/GPU generated a significant amount of heat, which was lessened with the transition to 65nm and again at 45nm.

The motherboard has seen several revisions as well (removal of EE CPU, then the GS GPU), eventually resulting in a reduction of the dimensions of the motherboard.

End result; the 45nm chipset should be more reliable due to the lower voltage required and lower temps generated. All this in a smaller case with lower air flow.