This is a good move on Sony's part. A PS3 console that soley plays PS3 games, has a 40GB HDD, wireless controller support and USB ports. People may not like that it does not play old PS2/PSOne games but Sony stated that without this feature the console could be mass produced much cheaper and it's in our benifit. It's always been stated by sony that the inclusion of the old PS2 engine combined with the PS3's was an expensive venture for the sole purpose of making the PS3 a total replacement for old PS consoles. Now with this $400 console, it's more fine tuned specifically towards the PS3 library and doesnt cheapen it in anyway. With 360's core console going down in price and Wii still no. 1 in game consoles sold a $400 PS3 console is a prime choice at this point of the console races. And with the 80GB PS3 only $100 more (fully loaded and PS2 compatible) now players have the option of choice instead of taking out a mortgage to afford the old higher priced PS3 of last winter.
You can buy a $400 PS3 that plays PS3 games and a $130 PS2 that plays PS2 games, for a total of $530. Both systems work natively in their designed mode, no emulation, guaranteed to play every PS2/PS3 game.
You can buy a PS3 that can play most PS2 games for $600.
Sony should strictly produce the cheaper PS3s, make a higher priced model with 120GB HD and 4 USB ports (honestly, the price between the HDs is like $20, the USB ports probably cost $10, if you charge $100 extra for this, you make $70 more profit), and then continue to produce PS2 consoles.