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Well I'm glad this didn't happen because I get to enjoy my Gears of War, COD, Mass Effect, etc. Games that aren't possible on the PS2 obviously.
What is the point of this thread? If this had happened we wouldn't have awesome games coming out month trying to outdo each other in scale, graphics, and gameplay. Instead we'd be stuck with games the PS2 can handle. Games such as a less impressive GOWIII, Final Fantasy 13 (same crappy story worse graphics) and more.
Personally I think Sony would be dead in the water if they stuck with the PS2. Eventually we all like technological upgrades and if they waited to release the PS3 a couple years down the road I think the 360 would have had an even bigger lead.