There's a lot of ways to look at the plans of each company, but as ever, you have to be able to apply the model you come up with accurately to past iterations and have the glove fit. In that regard, Nintendo's model is obviously not just "produce hardware and software at a profit", but also "disrupt the industry"; when has Nintendo ever remained consistent with hardware design? Never. The SNES differs notably in design from the NES, the N64 from the SNES, the GameCube from the N64, and the Wii from the GameCube. Each one attempts to change how the player plays games, by changing the controller layout and adding new elements.
When you compare the PS1, PS2, and PS3, however (and the XBOX and XBOX 360), they're all basically the same system with different specs and different levels of "everything box" focus. In the end, a PS1 game doesn't play that differently from a PS2 or PS3 game; you're still using the same 12-button 2-analog gamepad to play them every time. The graphics may be better, and there may be new features, but the input's the same as ever. The systems make no progress on how we play our games, only how much quality there is to the elements of the game.
Anyway, that's my defense for why I think Nintendo's got more behind their plan than just staying alive; that their plans are always to make the competition a non-issue instead of competing directly, while that's clearly not in Sony's or Microsoft's plans. I do still want to hear more explanations of why Sony and Microsoft would use loss-leadings tactic, however. Some good points and theories have been raised so far.
Sky Render - Sanity is for the weak.
