For what Sony's offering it's not an outrageous price. The question is whether any sort of decent-sized market exists for a video game console in that price range. Past experience says no, but times change.
Being a "cheap Blu-ray player" might wind up backfiring. They're selling this for a loss, unlikely the other players on the market, and the profit structure of the Blu-Ray market probably isn't designed to support that the same way the video game market is.
Plus, it's non-obvious that there's much of a market for the Blu-Ray either.