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I think you are forgetting what they took out of the PS3 to make it that lower price. It used to have a lot more features. I think you guys kind of missed the other point of releasing the PS3 too. Although it is competing for the game console area, PS3 was also meant to compete for the home theatre area (pass), and it was meant to be the host of sony's billion dollar idea bluray (fail). It is not all about the games anymore. To me, I just saw the PS3 as a way to launch bluray. However, in my opinion, I think it was too early as people are only starting to really get into HD.
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