The video game industry’s cost structure, from the perspective of the consumer, hasn’t changed since Atari. Usually the newest systems are $250-$300 on release, drops soon to 150-200, and games are $40-$50. This will probably never change unless Sony or MS actually live up to their whimsical dreams of a home entertainment center in a single unit.
As far as game selection goes, this is precisely why I am a Nintendo fan. Their first and second party releases are the best the industry has to offer, IMO, with very few exceptions. I don’t have time for a whole lot of gaming, and when I do play I want a great experience. Metroids and Zeldas alone are truly great gaming. For the current system, I prefer first and second party Nintendo games to third party XBox games to anything the PS has to offer (I do own all three). The PS2 is the bottom of the barrel, IMO. It is just an inferior system.
Sony captured the market it had by two moves, IMO. The first was the longevity of the PS1. It was a great system and it had a huge run. Even in the end of its life cycle developers were squeaking more out of the system. The second step was the backwards compatibility of the PS2. I don’t know how many people actually played PS1 games on the PS2, but I know I did (and do, Eris bless the original FF Tactics). Those two moves were the bread and butter of their current market share, I think.
RE: perceived value
I think Sony was smart to have backwards compatibility and the DVD player bundled in the new system. That does give it a higher perceived value. But MS took some strides with online gaming that picked up where the Dreamcast left off. They impressed me with their system.
Nintendo is a very conservative company, all things considered. They don’t want to be everything to all people. The GC is a reflection of this: it plays games. The end. It does this superbly. If you have a choice between an GC version and a PS version, there’s no real good reason to choose the PS version, IMO.
Sony and MS, on the other hand, have expressed their desire to be the center of the living room’s entertainment. If they can bundle a digital video recorder with their system and get on the network better than they did with PS2, they can keep their lead.
But remember that every new console release has a promise-lifetime of a few months. It is hype until the first units hit the market (usually Japan). Sony isn’t a lightweight in the industry, and they are not stupid. If they want to package this stuff, I think they’re going to have to go for separate unit versions or bundled packages of add-ons (hard drive, etc). I don’t believe the market is ready for a console system over $300 no matter what it does. Yeah, people stood in line for the initial PS2 release… but no, that isn’t what is keeping Sony in the market.