I just bought a PS3 primarily for the Bluray DVD playing capability. I am a HD nut. I bought the 20GB $499 version. This thing rocks. The quality is phenomenal.
For $499 it has the following
1) Cell processor running at > 3GHz. It has something like 8 cores. Simple ones though.
2) Slot loading Bluray drive. Plays DVD-Video, Audio-CD, SACD, BD-ROM, DVD-R, DVD+R, etc. No HD-DVD and I don't care.
3) Crazy fast graphics processor with at least 256 MB of RAM
4) Bluetooth
5) Four USB ports
6) Ethernet port
7) HDMI 1.3
8) Optical audio output
9) Bluetooth controller with rechargeable battery (recharge using USB).
10) 20GB user upgradeable 2.5" SATA HD.
11) I almost forgot - it plays games in upto 1080p resolution.
12) It plays MPEG2, MPEG4 including H.264, AAC audio, etc.
While the hardware is impressive for $499, the software does need work as far as a media console goes. The BD-ROM playback is awesome. DVD-Video, CD-Audio playback is also awesome.
It has rudimentary web browser. It does firmware upgrades through the network.
It does not however recognize any media stored in the local network. It is begging for Apple integration. What if we could merge the functionality of Apple TV into PS3. The hardware can easily handle it. What's even better is that the PS3 has bluetooth built-in and they sell a Bluetooth DVD remote. I bought this too and it is great.
Apple - Sony. You need each other in this. To battle microsoft.
In fact, if Apple sells a media server software for Windows and Mac that will integrate with the PS3 for even $50, it will be a hit. Think about it. The user can buy a PS3 (for which Sony loses money on) and then buy Apple's media server software ($50). If the user buys Apple TV, the media server is free.
Gamers can choose PS3. Non gamers can choose Apple TV. High end people can choose PS3, lower end people can choose Apple TV.
Knowing that Apple likes to develop their own hardware, I don't have any confidence this will ever happen, but I give kudos to Sony. The PS3 is a great machine.