Arrogance is what I would call it. They started to believe they were the kings of all the industries (film, electronics, gaming) they were in and they could do no wrong.
This was best displayed by their comments on the pricing of the PS3. Basicly saying gamers would buy it regardless of the price put on it. Well Nintendo schooled them hard in the art of setting a price point.
The wheels were falling off the PS3 wagon even at launch when most people waiting in line wanted to sell the unit on ebay, not play PS3 games. I haven't checked lately but PS3 sales were far behind the 360 and even further behind the Wii.
But in one regard the PS3 was successful. It helped Blu-ray win the format war. Makes you wonder what would have happened if Microsoft put HD-DVD in the 360?