I kinda expected at the beginning of the generation that the PS3's lack of mass piracy would lead to more game sales. It seems, however, that the effect of an "original games only" console has been negative, or neutral at best.

Almost every multiplatform game has sold better on the 360, despite mass piracy on that console. In fact, the PS3 has the lowest attach rate out of the 3 consoles, with the 360 having a very large lead. Aside from that, franchises from the PS2 (that also suffered mass piracy) didn't really experience a huge bump in sales on the PS3 (ex: sports games, Metal Gear), and in fact some franchises experienced a reduction in sales, meaning to say that fans will buy the original game nonetheless. I have now two propositions:

1.) Piracy actually helps you sell hardware, since some consumers are only willing to buy the console for the promise of cheap games, and more consoles on the market means more potential for software.

2.) People who wanted to buy the original game in the first place will buy it despite the presence of pirated games, so removal of piracy doesn't really result in the increase of software sales.

So I am led to believe that piracy can actually be a good thing for console and game makers. Any ideas fellas?

I don't get your second conclusion.

They only buy it to pirate games, but then just decide to start buying them?

my friends just bought a mod 360 and they will never ever buy a original game or give M$ a dollar profit.

I tend to agree with you. I come from India and have seen a lot of piracy with the PS2. Right now the 360 is modded and sold in huge numbers over there.
As you know all that piracy didn't hurt the PS2 or the game publishers.
Its not hurting the 360 also.

look at the psp and the pc markets.=dead.

There is no piracy on the PS3 because there is still no interest in doing so.
As soon as the price cut comes, it will start.

The only problem with your reasoning is that there is a portion of the PS3s sold that are only used a blueray players. So these people would never buy games. Because if you truly want an HD movie experience you need blueray and since xbox360 only does 1080p for games it doesn't do fuck all for DVDs which are only 480p.

call of duty 4 on the ps3 raped pc sales for god sake. and everybody hated the ps3 in 2007. now its only 80% of gamers.

As hair-brained as that sounds at first, yeah; I actually see how a booming pirate market could easily move more consoles.

Of course, as a publisher you're still ultimately depending upon software sales rather than installed user base to keep you in business. If too many start pirating/bootlegging games, eventually you go right back to a PC type situation where the main winners are those who manufacture and sell hardware components.

And relying upon the "good graces" of people who pay minimal money for bootleg games to turn around and buy the game again new at retail when the game is Just That Good, is not something any publisher can depend on or even expect. At best they might by a used copy when it was cheap enough, which doesn't do the publisher any favors.

Well sure looking at it simply from a hardware perspective it can be good to move hardware for those too cheap to buy games. But look at the software perspective it's a terrible thing. For example look at software sales on the PSP. They have been abysmal and despite the high install base it has caused many developers to stay away from creating PSP games.

Piracy is ultimately only a bad thing for game developers and the future of the videogame industry.