I don't buy the xenophobic thing either like Chibi. Other Western products have done fine there.
Like others said image is the issue and a pretty much non event first console that the Xbox 360 had come off.
If we compare game libraries, lets be honest PS360 libraries are 95% similar and which exclusives does PS3 really have now that set it apart from 360? GOW3, Heavy Rain, MGS4, Uncharted 2, LBP. Now only one of them is a hits in Japan speaking in relative terms, the others are very much geared towards the West.
Then you have poor sales of Tales OF Vesperia and Star Ocean 4 on xbox 360 in Japan (both were exclusive to 360 in Japan at first), the audience literally just didn't shift to xbox 360 and you saw a severe decline insales which can't be explained through the rise of the used market as the decline was sharp. Gamers saw it fit to miss out on those franchises rather than buy a 360.
So this is definetely an issue of image, not games library or xenophobia.
Its like the kiddy image nintendo had to fight with on the Gamecube due that image developing from the N64 years. Or you can compare it to the general image Nintendo has with 3rd parties since the N64 era.
