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One of the things that I don't understand is why some analysis believe that just because the PS3 is more expensive and can have larger price drops later in life, that it will out sell the other consoles that can only do smaller price drops.

I beilve that in the end the magic console price is $99USD. This is the point at which a console will become almost an impalse buy. (as long as it has decent games) And the Wii is the most likely to reach that point. The 360 has a slim chance of reaching that price. And I don't believe the PS3 will ever be able to reach that price.