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I like how people state that it wont happen in 08 as fact. Anything to back that up? I have quotes that hint towards it being true. One thing is for sure, if Xbox360 drops price then the PS3 needs to counter or it will be in trouble again.

Consumer price range says yes.
Huge cut in manufacturing costs says yes.
Sony execs said 299 is "ideal price point."

Kaz said they are working and researching ways to further bring down costs the week of pricecuts. He was referring to future price cuts when he said that.

Howard Stringer mentioned that the PS3 "comes down in costs every year."

Also, even if they did drop price to $299, recent development costs would still mean the PS3 would lose LESS than they did initally at launch. And who knows how much the most costly component, Blu-ray diode, will drop due to Blu-rays recent format victory.

All signs say its possible, would be a good idea, and they wouldnt really be losing any amount of money that couldnt be made back through the huge software boosts that would occur afterwards.