While I agree with the view that the PS-3 needs the Xbox 360, I would think that this picture is not complete. The split is more between:

HD: 360 + PS-3 + PC

Casual: Wii + PS2

Portable: PSP + DS

 And I think this split is really significant. It will probably lead to a situation where most HD Games  will be more or less programmed PC like because it reduces the pure development costs, which counters the additional costs for HD graphics. This development would pretty much ensure the profitability of the HD consoles, but it would come with a set back: The plattform with the best performance will pretty much be the PC, nothing beats Moores Law. The Xbox 360 will not really care for this fact. It tries to winn in the price sector. With its Triple Core and unified graphics memory it can in fact be used to model low end PCs, while its GPU can be used opaque to give the Xbox a Power boost. The PS-3 on the other hand has a problem. Its SPUs can not be used as normal multi processors (no unified cache, latency problems, needs special code), while its GPU is less powerfull. it will simply never reach its peak performance under such circumstances. But for software developers this will be the most attractive way. Simply look at the nuimbers that games like "Need for Speed", "Call of Duty" or "Assasins Creed" generate compareds to special plattform games like "Unchartet", "Ratchet & Clank" or "Project Gotham Racing" (You can't really use bundled software like Forza or Motorstorm, in this comparison, and a success like "Halo 3" needs a well established property and good luck).  

 Why are you bring PC into this. PC has had resolutions in the super HD levels back 10 years ago. It is not in the same catagory as PC's market is currently 1000 times larger then the console market. 

I think the Wii's success is a combination of the new controller and the low price.  We owned a 360 first, but decided to get the Wii as a second machine because it wasn't another big investment.

 I agree that the console competition between MS and Sony isn't just about making money on the console market, but also involves both companies wanting a bigger media presence in the living room.

However, I also believe profitability is a factor when we're talking about losses in the billions of dollars.  MS, for good or bad, is in a much better position to win under these circumstances than Sony.  They have an enormous war chest (> $100 b), they've shown themselves willing to lose large sums over the short term to win in the long term (such as the browser war), and their investors are conditioned for long-term thinking (MS fought paying dividends for a long time because they want their investors to think about long-term stock value instead of short-term returns).

Sony really can't afford to bleed red for as long as MS... 

I really wonder why many sony fanboys think that ps3 will dominate the console market in the not so distant future ...

Just look at PSP, it has a faster CPU and a higher resolution display but still it isnt able to catch up to the lower spec'd DS ....

HD graphics gaming is no real factor in the equation, actually, at least for some years to come. Same is valid for movies imho. That a majority only wants HD DVD/Bluray resolution movies at a multiple of the price of a DVD release anytime soon is probably just wishful thinking of the industry .....

This discussion made me curious myself, so I took the two earnings reports for Q1 and Q2 of '08 and dug through annual reports back to '97 when operating income for the Games Division was first reported(The Games Division wasn't reported separately until '98 but it did give numbers for the '97 year).  The following information is all available from http://www.sony.net/SonyInfo/IR/

1997    57.0
1998    116.9
1999    136.5
2000    76.9
2001    -51.1
2002    82.9
2003    112.7
2004    67.6
2005    43.2
2006    8.7
2007    -232.3
Q108    -29.2
Q208    -96.7

 All numbers are in billions of yen, though I haven't adjusted them for rising/falling strength of the yen.  The total is +293.1B yen.  This doesn't account for R&D losses for the original PlayStation that were most likely absorbed in 1996 by the Electronics Division, but considering the Electronics Division saw an increase in operating income from '95 to '96 the losses probably weren't very large(tens of billions or less instead of hundreds of billions).  Anyway, this show that Sony has indeed lost less on PS3 software than it has on PS1/PS2 software, but it has blown through the profits from PS2 alone and it's likely to take a good chunk out of the profts from PS1 in the next year or so(As Sony themselves have stated it will be some time before they're at the break-even point).

You're wrong, the past counts. It counts a lot. Share holders care about business profiles. Sony share holders know the "PlayStation" business, they know Sony can recover the PS3 loses (also remember most of the losses where financed by PS2 profits and where approved by Sony's board). Sony share holders know this because Sony had the same problems with PS1 and PS2. They lost money for 2 years and then made money for 5 years. On the other hand MS share holders never saw profits on the Xbox business at all. 7 years for 7B losses is not appealing to anyone I know.

 Also, if you saying MS is making money based on a single quarter where they posted a profit of $200M you better think twice. They still on a big loss for this year. Also don't forget that the profitable quarter was the Halo 3 quarter. Halo 3 probably accounted for more than $200M profit. So they still not making money.

Just one more thing, in a company like MS, that normally posts way over $3B profit a quarter, Xbox will never be a business to be reckoned with. It's just too small. MS needs a business to secure their future in case Windows/Office sales slow down. Investors want this and this is the reason MS stock has been flat for a while. I doubt any major investor is buying MS stock because of it's Xbox division.

Realistically speaking, people invest in Sony because they're so massive it is unlikely they will lose much money (not for any potential profit); it is likely that Sony will get a sell rating after March 31st because they will fail to meet their profit projections and their profit margin will continue to be negligible. Sony (as a stock) is not healthy at all, how does a company make less than $1 Billion profit off of $70 Billion in revenues?