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2 points:

1. The versatility of this new, smaller player is irrelevant b/c the HD-DVD is losing and will probably lose the dvd war.

2. This isn't a win-lose kind of game for sony. The PS3 does many other things besides play blu-ray games/movies, and therefore the added features will make the ultimate price higher than these cheap players that will be coming out. If/when they come out, Sony will really start to get its blu-ray movie business going, because the blu-ray would be at a more desirable price.

 

While you are correct that this would make the PS3 less directly desireable, sony will still be getting some easy $$$$ from blu-ray royalties, and can always shovel this money back into wherever it wants.