1 thing I think some people have failed to realize is that Sony is about more than games.  There have been many questions about whether or not it was a good idea (gaming-wise) to include a Blu-ray drive in every PS3.  That's a debate for countless other threads and NOT what this thread is about.

I think few people realize the real reason that the Blu-ray drive was included...ECONOMY OF SCALE.  By including a Blu-ray drive in each and every PS3 sold, Sony was able to drastically reduce the cost of the drives much faster than if only "stand-alone" Blu-ray players had been sold up until now.  Without the PS3, there is no way you'd be seeing Blu-ray players at even sub-$500 levels let alone the sub-$200 levels we're already seeing leading up the the holidays.

Sony is a multi-faceted company.  Gaming is not all they do.  The royalties they (and other companies of the BDA) stand to gain from Blu-ray hardware and software is arguably much more than they stand to lose in their gaming division.  It is highly likely that Sony (they're not stupid despite what you might think) knew that the PS3 would perform nowhere near PS2 levels, but they didn't care.  They were looking at the bigger picture.  I hope you'll do the same.

For those of you who will surely try to interject, "Blu-ray is dead/dying", I'll direct you to a column from someone who know quite a bit more about the subject than you or I.  http://www.thedigitalbits.com/mytwocentsa161.html#bdrant

Prediction:

A lot of Microsoft supporters will come here and praise Digital Distribution, which is ok, except those are the same people that were praising HD-DVD on the format war, so they're not to promote a format, they're to bring down Blu-Ray by any means necessary, like they lose money on the format war or something...

But i agree with you, the Blu-Ray decision was not to bring HD-gaming to another level, they could easily have done that by letting the game companies to work with multiple DVDs and storage space, Blu-Ray was there to bring the push that they need it to beat Toshiba's HD-DVD and become the HD-physical format of choice...

Did Sony anticipate this economic collapse? Imo their plan blew up in their face and they are screwed. Blu prices are going down because people aren't buying- monery is tighter, so they are much less willing to pay more money to get a better picture quality when what they have works fine. If Blu players stayed $300-$500 this Xmas, the format would virtually die. Prices are falling to as low as $180- this is an attempt to get people to buy it. Retailers have stated that if Blu Ray does extremely poorly this holiday, they will drop it/ scale back. Blu ray isn't on its last leg or anything, but its make or break time.

 Precisely.  Blu-ray as a gaming storage medium is one of those things that's "nice to have" at this point, but not essential.  Next gen, I'm sure that something larger than a DVD will be absolutely essential.  There were definitely other driving motivations besides gaming in the decision to include the Blu-ray drive in every PS3.

 Apparently, you didn't read the column found at the link I provided.  Blu-ray is doing very well.  Better than DVD at the same point in its life span.  The lower prices have nothing to do with the economy.  It's all about economy of scale.  The fact that there are budget models from brands like Insignia means that the drives themselves have become cheap enough and economical enough to warrant the production of these entry level players.  The home video market has leveled off and become stagnant the last several years.  Blu-ray is successfully bringing about the growth in the market that the studios had always hoped it would.

I bought a cheap $145 blu-ray player on woot.com, and I plan to buy a ps3 in the future, partly for the blu-ray. That being said, compared to dvd I fully expect the lifespan of blu-ray to be a short one. Digital HD streaming isn't as good as blu-ray, but I think it's close enough for most consumers, and it's only going to get better. Given this, I'm surprised Sony was willing to hurt their gaming division in order to help win the format war.

"Top ten reasons that prove Hollywood is only playing in the downloads world while focusing its real efforts on Blu-ray.

10 - Movie commercials say "now available on Blu-ray and DVD" never mentions downloads.
9 - You can't rent TV shows from any download service, but you can buy them on disc.
8 - 24 hour rental window.
7 - 30 day rental limit.
6 - Extras only available on discs
5 - Can't rent HD movies on the PC (only on boxes like the 360, Vudu etc).
4 - Pulls previously available movies from the selection.
3 - About a 30 day window between when a title is released on disc and on download services.
2 - Digital copies are now included with many discs.
1 - Can't buy HD movies from any service."

http://www.thedigitalbits.com/mytwocentsa162.html#ki

You can rent TV shows from the PSN..

That column is a straight lie.  In fact it's not even sayign blu-ray is going to do good.  It just says it's going to "hang on."

When it comes to disc sales blu-ray is MILES behind DVD during the same time period.

Considering the vast slowing of blu-ray adoption and Sony cutting it's own blu-ray forecasts drastically (which were behind DVD in the first place....)

Pretty much shows that Blu-ray isn't a predestined replacement.

Sure, neither i digital download.

It may just be that DVD stays the champ for a while.

Just how Laserdisc never put away VHS.

Aside from which over half the article is just a silly list of movies coming out.  (Also available on DVD.)

It's like a console wars post where someone posts multiplatform games to explain why one console is going to beat the other.

"GTA4 is totally why PS3 is going to beat 360."

I mean... what?

 With all due respect, where is the evidence in your accusation of the column being a lie?  Bill Hunt has countless industry contacts at all of the studios and throughout the industry as a whole.  Again, with all due respect, he knows a hell of a lot more than you do.  Just because you say it's a lie or choose not to believe it, doesn't make it so.  Plus, I don't know where you get the notion that he's saying it's just going to "hang on".  To quote his column, "Blu-ray is NOT dead. It's not close to death. It's not even remotely sick or ailing."