1. It was released too early. Since they released the 360 in 05 they weren't able to use a next gen format like blu ray and they couldn't do HDMI. Without these things the 360 doesn't seem like a next gen console has much the PS3.
It wasn't released too early, they could've put a BluRay drive into the system but they didn't want to force people who didn't want it to pay for it. Couldn't do HDMI? Get your facts straight; the system doesn't need anything more than a secondary video output port to do HDMI. You act like it isn't powerful enough to do HDMI and that's FUD. Who cares about HDMI. HDMI offers no visual quality over component, it's already been proven time and time again. The elite 360 and the (revised) premium 360s have no other hardware revisions other than the HDMI port being added. The didn't go make new logic boards that had new components that were required to do HDMI; they're still using the same 90nm logic boards they've been using since launch.
The only things the Ps3 has that the 360 doesn't is a) unmoderated free online play, b) media stick slots, c) BluRay, d) one-axis motion control. Considering that the Ps3 is a video game system, anyone buying it for b and c is teetering on the brink of ridiculousness since media stick slots and a larger disc format are not required for video games, and option d has already been halfassed and underutilized to the nth degree so no one cares about that either.
So you're left with...free unmoderated online play. Congratulations! Welcome to the next level!!
2. Bad hardware design
3. Bad hardware Reliability
360 has hardware problems now.
Sony doesn't. Now.
Let's see in 2-3 years how many people's Ps3 systems are breaking down and have to be played sideways and upside down because the lens won't read games.
Sony's track record in faulty consoles supercedes that of Microsoft's. Trying to convince yourself or anyone else to the contrary will make you look quite silly.