There have been many skeptics, myself included about Sony's decision to make every Playstation 3 a Blu-ray player. That added significantly to the console's production cost and it's disastrous $600 launch price, a major factor in stalled sales for the first year. And there wasn't much advantage on the game side. Despite Sony's claims, I haven't seen evidence that the higher data capacity of Blu-ray discs translated into better looking or playing games.

But today it's official: Blu-ray has vanquished HD DVD in the hi-def format war. Which means the now $400 Playstation 3 is one of the cheapest players for the only way to play hi-def DVDs. Combine that with a decent and growing slate of games and you've got a good value. Indeed, if you want to watch hi def movies at home, it's hard to imagine now why you wouldn't get a Playstation 3, unless the cost of stand-alone players starts  dropping or you just don't want videogames in your house. It's certainly already become a topic of conversation for my non-PS3-owning friends and is making me think it may finally be time to get one myself.

The question for Sony is how do they market it? Execs have made clear that their short-term goal is to establish the PS3 as a successful videogame console, something they didn't accomplish in its first year. Adding its capabilities as a Blu-ray player certainly muddles the marketing message and makes Sony Computer Entertainment look like they don't have confidence in it as a console.

On the other hand, Blu-ray is heading into the rest of 2008 with significant momentum and SCE would be crazy not to try and take advantage. It will be very interesting to see how Kaz Hirai and company try to cash in on that while still doing the work they need to do on the videogame front. It's a tricky balance.

As for Microsoft, now that it will be dropping its HD DVD add-on player for the Xbox 360 and writing off the millions it wasted supporting HD DVD, it has two options to mull:

-Start selling a Blu-ray add-on and pay a licensing fee to its biggest competitor for every unit sold

-Give up on hi-def DVDs and focus exlclusively on hi-def downloads through Xbox Live

Since Warner Bros. made the switch to Blu-ray at the Consumer Electronics Show, Toshiba has responded by slashing prices on HD DVD players. Though only two studios release movies in the format now, Toshiba seems to be banking on consumers buying HD DVD players just because they're cheaper, denying Blu-ray the dominance in player sales it expects to follow from a larger supply of content.

With Blu-ray taking a commanding lead, many suspected that Microsoft, a longtime HD DVD supporter because its software is used in the format's interactive applications, would jump ship. But not yet. Today the tech giant followed Toshiba's lead (perhaps helped by a subsidy from Toshiba?) and slashed the price of the HD DVD drive that can be connected to the Xbox 360 from $180 to $130. And Amazon.com is offering it for the super cheap price of $80. (hat tip: cheapassgamer)

Of course, for potential buyers who want a videogame console and hi-def player, $400 for a PS3 with Blu-ray is still cheaper than $350 for an Xbox 360 plus $80 -$130 for the HD DVD drive. But given the 360's other advantages (more and better games, superior online), not to mention its higher install base, that's still serious competition. Despite what we all thought at CES, I wouldn't look for the hi-def DVD war to end all too soon.