Definitely as a whole Sony was better off back in the day. I was reading over some articles about Playstation 2 and I was surprised to find it has had its share of financial problems. Most notably when the Yen became strong in 2003, it hit Sony quite hard (Nintendo too, actually) and also around launch time Sony had a lot of problems. I recall the original Playstation was quoted as being responsible for nearly 1/3 of Sony's profit at its peak. I imagine PS2 has also been profitable, but you may be right, Sony may already be experiencing a decline in the video game market.
That said, Sony's had even more trouble in other electronics markets. IPod nearly obliterated Sony's portable music market and Samsung has apparently taken a lot of Sony's TV market. I think the electronics industry in general has seen a lot of change in the past few years as digital cameras, portable DVD players, Cell phones and handheld computers all allowed relative unknowns to make a mark.
I still don't see Sony dumping PS3 very easily, but I suppose it could happen. It would require a sudden shift in Sony's overall business strategy, I'd say.