If Sony was willing and assuming is able to bear a $300 price tag with the hardware as is, then Sony would have been able steam roll Nintendo. The Playstation brand would have been able to pull enough of the existing userbase over to next gen. But at $600, it was no longer an issue of price sticker shock, it became phyisically unaffordable. Kens infamous words of needing 2 jobs to buy a PS3 became true.
Considering that Microsoft with it's near infinite resources weren't willing to go to that price with the 360, Sony would have never survied long enough to implament it's so-called 10 year plan or even a 5 year plan. The division's continued unprofitablility after launch at that level would have caused a shareholder revolt to the like that has never been seen before. Shareholders were, before the launch unhappy with it's sliding share price after the $600 E3 incident. The first quarterly report after launch would have been a double binded A4 sized Armageddon device.
The Shareholders would have demanded a solution that would end have caused the destruction of the company or the games division or best case, where we are now. The share price could have crashed and that would have been it, worse than Sega. The Playstation division suspended or jetisioned. Or thirdly the price of the PS3 goes up sharply to levels like now or higher, killing sales and causing comsumer backlash rivalling the Warth of God.
If they went for a $300 machine, it would have went against everything that they were doing for the last 10 years. At every turn regardless if they were the weakest machine out there, would push the graphics in King message. With PSX, it was FMV, PS2 the emotion engine and Toy story. The PSP, handheld PS2. Sony would have never gone for it no matter how much sense it might have made. With Microsoft egging them on and calling them chicken, it was a forgone conculsion that the PS3 is what it is.
But if by some strange twisit of fate that they did produce a $300 machine, that would have produced it's own problems. They would had to fight it's own graphics hype like Nintendo has to fight Gamecube 1.5. It's controller would have still lacked rumble and would have had a difficult time fighting off the superior Wiimote. MS would take the HD section, Nintendo the low end and Sony would be stuck in the middle in a poor compromise. Had Sony launched the same time as MS with a weaker machine, they would have had an even chance. The hardcore would have been pissed to no end with the lack of HD or graphics, but the average consumer would have seen a new playstation that was affordable. But there would have been no games ready for launch and every dev developing for the PS3 would have had to start their own Manhatten projects to get anything on the machine within a year of launch. A year of utterly crap games.