That's definitely what Sony was thinking. Of course, they believed that Bluray would take off in the way that DVD had, and it just, unfortunately for them, hasn't.
At the end of the day, they could have kept everything else the same, gone with DVD and been just fine this generation. They could have launched alongside 360 and probably would have beaten them, or at least been pretty close to neck and neck. Though they droned on and on about how bluray was necessary for games this generation, we now know that it really wasn't, but that's all a matter of hindsight (well, to be fair, many of us knew at the time, simply based on the math of what the system could process, but that's another issue).
On the bright side, they're well prepared for next-gen, and shouldn't need to go crazy on hardware; simply offer additional cores and an updated GPU, more RAM and hopefully a wider system bus.
