I don't see Microsoft overtaking Sony unless Sony is really arrogant. Granted, lately, that seems to be the case. Offline Gran Turismo 4, a harddrive incompatible PS2 Mark II, and ever-growing rumours that the PSP will cost over $300...Sony seems to be slipping.
But I wouldn't bet against Sony just yet. Microsoft will never be able to take Sony in Japan unless it gets support from Square Enix (or from every other Japanese dev that makes an RPG.) Besides which, as Nintendo and even Sega showed us, a hardware maker can remain standing for a long time even if it loses big chunks of market share. I think it's possible for Sony to be squeezed out, but it won't be quick and easy.
I think Sony needs to get more aggressive. I personally have found Sony's marketing to be no better than Nintendo's this generation: when the Gamecube and Xbox first came out I was surprised at how weak Sony's response was, and a lot of Sony's recent ads have been awfully lame. Then there's Grand Theft Auto...it was Sony's trump card, and now it's on Xbox. Late, yes, but there nonetheless. Along with Tomb Raider, Crash, Resident Evil, Metal Gear and Final Fantasy, GTA is one more sign to casual gamers that you don't have to own a PS2 since most of the popular games wind up on other consoles eventually anyway.
Could Nintendo wind up being the loser? Yes. Sony has actually been pretty kid-friendly all along, and I know hardcore Sony fans who play the PS2 for it's RPGs and wacky Japanese games. I think it could eclipse Nintendo.