Sony will make more on Blu-Ray licensing fees than they will with videogames. How has M$ won? They still haven't recouped their R&D fees from the original Xbox. Just like last gen Ninty sold the least but made the most money, the PS3 might sell the least, but with Blu-Ray licensing and cost reduction (Sony is great at this), they will make TONS of money. Cheers.
MS is in it for the long-haul, not the short term. The money involved is almost irrelevant to them... even writing off $1.1 b is less than 1/100th of their cash reserves. Think about that for a moment. The RROD writeoff to MS is almost like having $100 in your pocket and having to spend 80 cents.
And each quarter MS keeps raking in billions more in profit: their 2nd quarter profits were $4.7 b. That's not revenue... that's profit.
Yes, MS wants to eventually make money on game consoles, but they'll keep pounding on the competition until they win or decide that they can't possibly win. Take Windows for example. Window 1.0 was horrible. It wasn't until Windows 3.0 that they even had a toe-hold in the GUI OS realm, and it wasn't until Windows 95 that they really started to gain complete control of the desktop PC OS market. They released the first Windows back in the mid 80's, and it took almost 10 years before Windows started to really pay off. How long have they been in the console business? 6-7 years?
Considering how much better saleswise the 360 has been compared to the original xbox, I imagine MS is willing to go at least another 2 generations before calling it quits.
Yes, it's not fair that other companies, such as Sony, aren't rolling in cash and have to please their investors with good dividends each quarter. But that's the reality of competing against MS in a market... they're going to have massive resources and a willingness to bleed red for a long time before giving up.