Definitely time for nexgen. Don't get me wrong, I have PS3 and I like it. I also have a PC for gaming:
Here's a quick point: 3D. I have it in my living room. There are several games that I own on both platforms, mainly due to great deals on steam. I have Assassin's Creed 1, 2, 3, on both platforms (redundant, move on). Using my NVidia SLI setup coupled with 3DTV Play, I can get a "3d vision" effect on most of my PC gaming though my Viera TV. The PS3, OTOH, only does a select few. I can use gaming controllers for both. Good sound for both. Except for the PS3 exclusives, the PC has always seemed to have the advantage here.
I would make point that adding another "killer app" or feature would more be in Sony's best interest than re-sizing the hardware footprint. Oh, well...