The parts are cheaper for manufacturing. The parts they used in the PS3's up until the Slim were bigger and more expensive, not to mention used more power. They were only dropped to $299 on the older models to clear them off the shelf. Now Sony isn't losing as much money on each console sold and they're supposed to break even or profit by the end of the year.

Lastly, hard drives are cheap anyway so you might as well put one int he same size as the 360 Elite HDD because that's what they're supposedly "competing" with, if that's even an appropriate term.

I hear what you're saying, though. I bought a 60GB model for $340 after tax & shipping at the beginning of 2008: best Playstation-related purchase I've ever made. I honestly wish they figured out ways to make that version 299 because it's possibly the best gaming machine ever made. PS1, PS2, and PS3 games, Linux-supported, 4 USB slots, Compact Flash slot, SD memory slot, Memory Pro slot, Wi-Fi, it's absolutely the all-in-one entertainment room centerpiece that Sony envisioned, and they've been slowly chipping away at it over time, because everyone in the media complained about the price. People still bought it despite the price - it sold better than the 360 did in its first 3 years, they had to drop the price to 199 to start outselling the ps3 again and that's come to an end even though the ps3 is still 100 more expensive. Despite all of that the media still made it look like it was a failure.

Anyway, I guess I can't really knock Sony for it - I got my 60GB model and they're still out there refurbished/used for cheap if anyone really wants it. I guess they just had to make it more accessible and that's what they did.