You know, despite the success of the PS1 and PS2, I don't think Sony has any idea what they're doing. They only succeeded with the PS1 because Nintendo shot themselves in the foot going with cartridges on the N64 and Sega fired a BFG 9000 at themselves. And with the PS2 they had no competition. I think Sony just got damn lucky and doesn't know how to compete with equals. Think Rocky VI. I'm expecting Microsoft to win the upcoming generation.
Not sure what you mean with the cartridge comment but I think it goes beyond the storage capacity limitation. I think Nintendo burned bridges with third-party publishers with being the source of those cartridges and charging much higher publishing fees just to make a game for their console.
Everyone I knew that bought a PSX was because it was a hot machine at the time. It was the first time that home conversions were getting close to their arcade counterparts.
Were the X-Box and GameCube not competition for the PS2?