I don't believe the PS3 can compete this Christmas without a price drop. Only real hardcore gamers with money will pay $600 for any console, and a high percentage of that limited market has already bought one. There are no supply issues, and haven't been for a long time, so any of them can go pick one up right now. Add to that the fact that the XBOX360 is almost guaranteed a price drop this year (since it will be two years old and hasn't seen one yet). I also wouldn't be surprised if the Wii drops to $200. Stand-alone Blu-Ray players will also be cheaper this Fall.
The same goes with the PSP. Hardware sales have been poor for nearly a year now, and software sales have been abysmal (DS software outsold PSP software 8:1 in Japan last year). Only Sony/Universal is even making movies for it anymore, so there is even less reason to buy it than when it launched.
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