So here is my take.
Those production numbers are probably Ideal numbers of 700,000 units per territory. If production hasn't started yet, then they have no idea what the ratio of defective units will be yet...and there is always bumps and incidents in the production lines. Just look at the Xbox 360. We are potentially looking for shortages worse than that. This is pretty bad for Sony.
On the other hand, you have Nintendo that has potentially been in production for awhile now, and they are confidently increasing their supplies at launch. Nintendo should also be facing far fewer numbers of defects because the technology isn't as cutting edge as the PS3...and not to mention Nintendo's track record of quality hardware.
Finally, I don't think Sony killed E3, but if I was Sony or any other 3rd party company I would have been upset to see Nintendo getting some much attention at the show, and our booth getting little to no love from the press. However, Nintendo came to the show with the goods and the most excitement, so you should have expected that Sony.