They weren't able to shrink parts yet because of high demand(you have to slow down production for a bit to change manufacturing). This is why costs haven't dropped.
It also takes a while to determine when manufacturing will change. Some parts, like the unique disk drive, probably dropped cost a little bit due to scale. But after inflation and exchange differences it's probably more than made up for that reduction. So it's basically never dropped cost.
It's just bad(and good) luck, that demand was so high they couldn't do anything to manufacturing. This will probably change soon, I'm not sure if this year or next though.
One thing they gotta get rid of is that unique self-loading disk drive that accepts mini-disks as well as large disks. If they could only use a standard drive, that thing would cost nothing and drop costs significantly.
So the best solution IMO, is a redesign where they shrink the chips, drop the power supply and include a slot drive like the 360's and FAT-PS2's, which already includes a small opening for minidisks at a really small cost. That would not only incite some rebuys but would also drop costs exponentially. The thing could be priced at less than $150 if they only changed the design a little bit.
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