Often bleeding edge electronics are sold at a much higher margin in order to recover R&D costs and encourage electronics retailers to maintain stock; the initial Blu-Ray players probably never cost more than $300 or $400 to manufacture and ship. On the other hand the PS3 was manufactured at a loss and there is practically no retailer level profit from selling a PS3.
One thing that has been reported is that HD-DVD still dominates the stand-alone player market and (practically) all Blu-Ray movies are sold on PS3 systems. The shift in price on Blu-Ray players is probably to move stand-alone units and to limit the ability for HD-DVD to recover.
Sony/Blu-Ray boosters may doubt HD-DVD's ability to recover but movie collectors and videophiles are far more likely to buy a stand-alone movie player than a game machine that also plays movies; these people also buy far more movies per person and are likely going to influence non-early adopters on which format to choose. If these people choose HD-DVD because of how much more affordable it was ($350 for stand alone compared to $1,000) it could be a very big blow to Blu-Ray.
