The cost of the chip was huge as it is a unique chip is nearly 90% of the cost of making a PS2. That and the other things they cut out, the memory card ports, the extra two usb ports and other little changes made the difference of over US$100 per machine.
At the time Sony were losing that and more on every PS3 sold. Every machine was literally still selling at a big loss, even after that huge cost cutting measure. Sony had lost $2.5billion dollars on selling PS3's last time I looked.
This came from including things that you had to pay more for from Microsoft, a larger hard drive, Wi-fi, Blu-Ray (you'd have paid more for HD-DVD for Xbox 360), HDMI and full 1080p video (not on XBOX 360 at the time, even now only 1080i max) and the cell chip which is going to push the PS3 further in times to come.
Thats why they had to, literally had to do something. Sony's gaming division was leaking more money than any of Sony's other divisions.
The Wii is a fine little machine, but is making a massive profit as it's a very mildy better PS2 with a great control system. It's very cheap to make.
The Xbox 360 in it's original RROD model was not a signifcantly more expensive machine for microsoft to slap together either. They also outsourced the cheapest assembly possible, which caused the aforementioned RROD.
"It's lazy, bone idle cost-cutting"? No way, I'm sorry. No way.
