I think this rumor has been around for a long time, I remember a thread about it for a while back. The anonymous e-mailer from that article didnt leave any details, so this is all speculation but...
I am assuming that the eye toy controller would not have the same functionality of the rev controller. The sony controller would probably be something bright colored that the eye toy would pick up its position. In this case, it would be extremely diffiecult for this concept to be as accurate as the rev's controler (unless sony gets around nintendo's patent, and puts gyroscopes in the eye toy device). Picture this, you point the controller at the tv, then spin it on the Z axis (ie, left side goes up, right side goes down) The rev controller would have absolutely no problem picking this motion up, the eye toy's controller would have a lot more difficulty doing this.
Now lets say (hypothetically) that they eye toy device had the same funtionality of the rev (if its possible, extensive programming would be required). Nintendo is the one with the guts to actually push the controller as the concept behind the rev. Sony probably would go in the direction they are currently going, and promote graphics, the eye toy controller would take a back seat (much like the eye toy itself did, and we all know how that turned out). On the PS, the eye toy controller would probably be used to just make a few select
probably not very good games. The only other reason for its existence would be for rev ports, in the latter case, for people to actually buy the eye toy controller, the rev, and its controller would have to be very successful, successful enough that the rev would actually still have a fighting chance, even if its controller is no longer original.
Dont get me wrong, Im not saying that an eye toy device would not be a threat, but I dont think sony is really in a position to push such a device as well as nintendo can.
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Why does this "weak" hardware at a low price have to be NEW hardware?
From what I see, the rev may be "weak" compared to the competion, but the way your saying it seems to mean that the rev will just be a repackaged gamecube with a new controller. I have full confidence that the rev will have much better graphics than the cube, its just that the graphics are not what nintendo is emphasizing. Graphics are not as important as they used to be when comparing a console, even the 360 doesnt have very much of a difference compared to this gen, especially if your not playing in HD.
Edit:
Found it It wasnt really a rumor, just somebody supposing that it could happen.