PS3 was $500 for the lower version, $600 was for the bigger HD. It also didn't sell well. PS3 didn't start to pick up in sales until the price started to drop, and at the time of release PS3 was incredibly powerful.
I can't imagine someone dropping $500-$1000 on this, at that point just build your own computer people!
Unless they lock down the hardware, they will not be able to subsidize it. People will install Windows or Ubuntu on it, and use it as a standard PC, if it is cheaper than equivalent PC hardware.
You are right. Other options are to subsidize it with games (i.e. you buy console for the full hardware price and get bunch of games) or lock it down. If they decide to lock it, I would greatly appreciate if they sell it as a Gaming console + home media center (with or XBMC something).
I've always expected it to be at least $500. I mean it's a PC! And you're "only" paying $500 for a "gaming PC". I think that's how you should look at it, Or like a Mac Mini, which is $600.
Also don't forget that the ecosystem might be cheaper. I mean, the consoles might be $300, but you're paying back that subsidy many times over with $60 games. On Steam games are a lot cheaper.
So they won't be able to subsidize the console price as Sony/Microsoft does? Because the price seems a bit on the high end for a gaming console.