Hmm.
MS is taking approx. $300 loss on each premium console sold.
If the PS3 really costs around $850 to produce, and they sell it at $400, they'll be losing $450 per console. Sony may have deep pockets, but they do not have as deep of pockets as M$. That means they are either going to drop hardware, or sell it for more, OR like we see with the 360, do what The Bat said, and sell all the accessories for an absurd amount. M$ makes like $35 per wireless controller, so if Sony sells wireless controllers, and a blu-ray adapter, and a harddrive, and software for online play, and Highdef cables for both of your outputs etc. etc. etc.
So, if they sell it at a higher cost, lets say...$450, plus if you want Blu-Ray playback you've gotta drop another $40, and you need another controller at least another $50, and you need a harddrive at $100, and what good would the console be without a $60 game, plus some highdef cables to even get HD (will they include them?) $30, we're lookin at like around $700+ just to get the damn thing up to par with 1 game.
Lets not forget sales tax on a $700 item. So, I've got the $400 Xbox 360 (maybe a price drop by then) with a plethora of games, media capabilities, online everything....why in the hell would I want a PS3, I dont care if they do come out with some nice games, I wont be buying it till its been dubbed the PSThree and has fixed any initial problems with blu-ray (because we would essentially be beta testing 1st generation blu-ray), officially dropped harddrive support for the second time, and changed the controllers from looking so gay.
Good job sony.