From IGN:

 Sony has responded to internet reports claiming its newly-released 40GB PlayStation 3 is suffering from a 40 percent failure rate, the company categorically denying the claims.

In an official statement, David Reeves, president of Sony Computer Entertainment Europe noted, "We are very proud of the quality and reliability of PlayStation 3 and are disappointed that such extremely sloppy journalism has resulted in this totally inaccurate story". He continued, highlighting the console's "fantastic jump" in sales since the release of Sony's 40GB PS3, alongside the machine's "very low" failure rates.

News of PlayStation 3's blowing up like they'd all got together to have some kind of blowing up competition hit internets following a story on Dutch website Gamed.nl. The site claimed Belgian games retailer Games Mania had revealed that, despite selling well, Sony's 40GB PS3 was suffering a return rate of 40 percent, with customers experiencing disc-read issues.

Seems to me Microsoft denied they had a problem too.  Time will ultimately tell.

check the other thread. The game.nl have already remover the story and said that there is no problem.

It should be obvious that the statistics are fake. First of all, you can't determine failure rate a few weeks after a product launches.  It would have to be completely untested. 

Secondly, a 40% failure rate is way outside of the realm of consumer electronics. The *only* device I've ever seen approach that number (and exceed it handily) was the Xbox 360. So far, the PS3's reliability has been awesome. I've only heard of one case where a PS3 had to be returned, compared to the same forum where anywhere between three and five people report newly faulty Xbox 360s every day.

Yeah, I would have thought the story was bogus as well. One thing Sony did much better this time as compared to the ps1/2 was the reliability. Really nailed it this time. kudos.

Anytime you create a revision to hardware there is a decent probability that there will be a flaw which will greatly increase the failure rate, which is why this rumor is plausable. Being that we haven't seen much evidence of a massive number of failures it is likely that Games Mania received a bad batch of PS3 systems, were handled poorly in transit, or were simply unlucky; and most likely it was a combination of the three.

I still would hold off on getting a 40gb until I was absolutely sure though, no point in risking it.

It should be equally obvious that you can't accept the possiblity of a problem with the 40GB PS3.  I am skeptical of the 40% rate, but I don't think that Sony can do no wrong.  Remember the P$2 bad disc error?  Sony may be repeating history.

And if you want to hear another "failure" story, my 20GB PS3 has been exhibiting a rolling ghost band lately (I don't have this problem with my Xbox 360, Xbox or PS2).  I'm running both the TV and PS3 through the same UPS, I've replaced the video cable - even ran it directly into the TV (bypassing the component switch), but no luck.  Since I've had it for less than a year, I'm thinking of calling for warranty service.  While technically not a failure, it's unacceptable.

 Same here, and on Belgian/Dutch forums no one is complaining about his 40GB PS3.

That store in Belgium 'Game Mania' haves a forum and no one of the members who owns a 40GB PS3 had a problem.

 Remember it >.< I recieved money from the class action suit whenSony was denying the problem. I actually had to go in fix it myself and void my warranty.. it pissed me off a LOT which is why I can be hard on Sony from time to time.