Well perhaps Sony hasn't been nice enough to refund retail chains for the price drop yet?

My local paper with the Circuit City and Best Buy flyer had the price drop listed a week ago. Strange that it wasn't in your area. Maybe it is one of those things that they advertise in the paper and online but don't drop the price in store unless you ask about it.

I think it definitely means that it was a reactive price cut to the results from September NPD. No one expected their sales to go down in a 5 week month with Lair launching at the tail end of August, and Heavenly Sword dead center in September. In a mall close to where I work, there are two game stores, and one of them STILL shows $599 for the 80gb pack, while the other has $499.

So weird.

if I was a store manager and these kind of shenanigans started affecting my P/L's I would drop the product. Then I would transfer any on hand to another store.

If you had another store, this would suggest you were a chain.  And as such, you probably have an agreement with Sony as a chain and you cannot make changes to their products individually.  This should include your willingness to stock it, the price point, etc.  

Could someone from the retail business explain what's going on here?  Retailers cannot set their own prices for the PS3 -- maybe they have a grace period before compliance with the price cuts is mandatory.

 See that's the thing, all the stores around here SELL the 80 gb ps3 for $499, they just have it advertised as $599 in the Sunday ads.

Well here is chicago I got an advertisement in my paper from Sony. In the advertisement Sony has the 80g listed at $599.99. Apparently they didn't even tell themselves about the price drop.

Places near me are just starting to change the price in ads.

Even here in Canada, where stores are always late with new products, the prices are all changed to 599$.
Even Playstation.ca is updated...and that doesn't happen very often

Sony's going to be in big trouble with retailers if it keeps pulling these shennanigans