Guys, please stop talking about the early death of the ps3... It looks like you forget the price of the system, it's not cheap, it's still a "elite" system. I really don't think that the ps4 will come out before 2012...

Exactly, the point that the world is seeing is price... especially US...

CPU:

4 or 8 'PPU'(Basically low end CPU from PC market, depends how the things go.)

GPU:

Low end GPU from PC market

Price:

Under $200...(Still nett for every console sold.)

Cost of development:

Minimal

Games:

More for casual, less for HC

Controller:

Some waggle thing or controller based on camera.

Games would look incredible compared to PS3 thanks to better GPU. Even now you can get low end PC to run crysis better than X360 or PS3 can run their games(thats 30+ fps). Just think about PCs after few years.

Sony aren't that desperate...

For god's sake, the PS2 didn't launch at 200 bucks. And the controller will be the Dual Shock 4. I really don't think they are going to abandon a formula that won them two generations.

I hardly see the CBE as a low-end CPU, even in four years...

On one hand, using the Cell is a good idea since they have already invested a lot in it. On the other hand, I think it's becoming obvious that making life easy for developers is a good idea.

Combining these two factors, I think they should just use an off-the-shelf processor for the PS4 which they don't have to pay a lot of money for. The diminishing returns of CPU power are starting to become more and more obvious, and it's not like TVs will get even bigger for the next few years, so why invest a lot in processing power?

I will give this a shot.  It is becoming apparent to me that Sony will be moving on from the PS3 much sooner than previously thought.  I know they said they have a 10 year lifecycle, but that was when they were the dominant console.  They also said they would have 100% backward compatibility. 

I do not think the next version of consoles will push the technology nearly as much as the HD generation did.  Sony and Microsoft will focus on a business plan similar to Nintendo's plan.  The old console business model, selling consoles at a loss to push software, does not work anymore.  Sony will release an incremental upgrade to the PS3 that will allow for complete 100% compatability with the PS3.  They will replace the PS3 with the PS3.5.  They will still encourage software vendors to target the PS3 as their lead system, but will encourage them to offer high end settings in the game to support the better technology of the PS3.5.  This will be similar to the pc model of offering different modes based upon hardware capabilities. 

This new version of the PS3 will contain the same cell architecture that is currently in the PS3 but will be much faster.  Also, the new video chip will be based on the current ps3 gpu.  Both of these items are absolutely necessary to maintain 100% forward/backward compatibility.

The ram will still be split between cpu and gpu with 1 gig of ram for each.

The PS3.5 will have a 6x Blu-ray drive.

The base PS3 will ship without a hard drive.  The standard bundle will include a hard drive.  You will be able to upgrade or add any standard 2.5 sata drive like you can in the PS3.

Sony will introduce the dual shock 4 which will be the break away controller that we have seen before with much better motion sensitivity than the sixaxis.

Misc: External power brick, no slot loading drive, 1 memory card reader, bluetooth, built in wifi/gigabit ethernet.

This version will be released at $250 in 2010.

Thats not desperate, thats evolving. Making console like PS3 in next gen would be suicide financially. Just like dbot said, old business model is gone for good. As you can see this gen winner is exactly doing the thing I wrote there.