I thought sony was about to break profit on the 40GB ps3's?(months ago)

I don't think Sony really need to do anything, i think they already released a statement to the price cut, along with Nintendo stating that they will not be reducing the prices of their consoles in response to this!

Part of the reason I believe that Microsoft is Doing this Price cut is to match what the Dollar is currently worth compared with Euro. The Dollar has been week for some time while the yen has not been (correct me if i am wrong) . So thats the reason why we will not see a Sony or Nintendo price cut in Europe any time soon.

Not only is Sony breaking even with the 40GB PS3, but they are doing so at 400 USD.
Considering they didn't notice the EURO more than 50% above the dollar and still sell
it here at 400 EUR, that's all margin they have to cut and compete.

I believe they will closely watch and evaluate maket reaction and before GTA4 they will
most probably go for option 2.
Somehow MS cut is a double edged sword, on the one hand it will surely boost quick sales
from those who were waiting and some impulsive buyers.
On the other hand it will further sink x360 loser's image in Europe.
I'd also wait and see if I were Sony.
And I'd also would keep financing Japanese and American PS3 with
euros as long as we Europeans are willing to pay for it
(I own a PS3 from launch day myself, so there is no criticism intended here)

probably nothing. sony i think wants to maintain their image as a manufacturer of premium electronic goods. if they keep on droping the price of the ps3 then it would probably kill their rep which is something they dont want.

I think they will monitor the next few weeks and then decide what to do. It seems now they don't want to do anything. They just announced the PS3 w/ GT5:P for 300 GBP.

I don't think we'll see any price cuts from Sony until the end of the year (I think they'll be forced to by then if the Xbox 360 has a price cut in North America).