The PS4 has been released, the specs are very impressive, the games are jaw-dropping and a technical marvel. There are certain people who under these circumstances expect Sony to price the PS4 below $500, and still make it even.... but is Sony in a position to do so?

It is well known that Sony is not on a heathy position right now, and doing that can do more harm that good. Of course, that would please the fans and gain them even more recognition on the internet, but is that a wise decision?

Apart from that, they expect every developer to push the system to it's limits. Can studios like ThatGameCompany or Insomaniac make it past that test? Aren't you putting some fan-favorite studios in danger?  Everyone wants their games to looks as realistic as possible, but that will ultimately lead to many studios shutting down because they can't afford the changes, nor the market accepts anything that doesn't look "new-gen".

Only EA, Capcom, Activison, Santa Monica, Naughty Dog, among powerful others, are sure to make it past without any issues... but what about the rest?

Unfortunately for some people those publishers you mentioned are enough. 

But anyway, devs and publishers will need to "lower standards" to keep them as a profitable business company. Some games today need to sell 2m+ copies to break even (at a full price), and not many really reach that mark (at least not when those games are still at $60). Having said that I think there are two possible scenarios:

1) Publishers and devs continue with this high budget stuff, forcing the middle devs to "compete" against the big boys (because if it doesn't look like Killzone then people will not want it) and thus resulting in a lot of failures and studios closing (similar to this gen but at a higher scale). That will leave us gamers with only two options: the high budget AAA games and the indie games. All things in the middle will "disappear" or will become less common.

2) Publishers and devs finally realize this budgets are getting out of control and start to lower standards. Not making big emphasis in graphics and more on the artstyle (aka not going for photorealism). Stop hiring actors to do your characters voices. Trying to make "smaller" games but without making it less fun. By reducing cost you also don't have to invest more millions in marketing. Devs need to stop making games like movies, and by doing so the dev cost could at least stay the same they are right now (the average AAA game cost between $20m-$40m). So if we go this way we could have a very similar gen to the previous one, which is better than nothing I guess.

3.Go the Nintendo route.

I don't believe in rising dev costs, therefore your argument is invalid.

What makes you not believe in them?

Exactly. They have the misconception nothing will happen to Sony with these standards.

I don't believe your belief is correct, your argument is invalid.

No one is forcing devs to have to take full power of the PS4 right off the bat. They can do so gradually at their own pace. Remember that this console is being made for a ten year cycle, so it has to be powerful to be able to withstand the later part of its cycle. Hence Sony can take a loss now to widen its userbase (not to get internet fandom) which will eventually mean more games being sold and that in turn will give Sony more money in royalties to overcome the loss and become profitable. There are devs such as Epic, Crytek, Dice, Ubisoft, Activison, CDProjekt, Bathesda, etc who want more power in the consoles so that they can use the full potential in their engines such as UE4, Cryengine, Frostbite, etc.

I suppose at the end of the day, the big developers who want to utilise the new console powers will do so and there will be always those who want to make bigger and better. On the other hand, the smaller devs can still make games that are not as graphically intensive, but are more artistically and gameplay wise very good, i.e. XBLA/PSN indie games. So this will leave us consumers with games that are very big and games that are very innovative and good. There won't be any "middle" ground or shovelware. Or so I think.

Of course; I value my enjoyment over the minuscule difference that my decisions make to a corporation.

I don't believe I had an argument, therefore your invalidation is invalid.