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...or you can imagine a situation where console still contain very weird innovations, but still provide a simple common layer.

Games are either manufacturer-exclusive and exploit all special bells-and-whistles (original new controller, clever usage of the steam coprocessors or whatever) or games target a special set of API and hardware capabilities that exist across all major player.

The concept is somewhat similar to what currently happens with some developing toolset that let developers cross compile software for several consoles (id software's next engine which works on PC, XBox 360 and Playstation with one single toolset is such an example).

The only difference is that current such tools are done by 3rd party, have to be acquired separately, and finally produce console-specific disc wich bundles game data with console-specific runtime layer, whereas EA's idea could be implemented if every console offered in it's firmware a "standarised environment".
It could be something similar to what smart phones (and to some extend, the interactive capabilities of high definition disc players are doing) are already doing : most of them have different and specific hardware and OS platform (Symbian, Linux, Windows CE, Palm OS, ...) but all have Java MIDP which can be targeted as a standard unified platform, it doesn't provide all the niceties of native binary but is the kind of "one target to rule them all" that developer are looking for.

In the console realm, an open-source stack based around Linux + SDL + OpenGL + some scripting language (like python's pygame. Or better Parrot Bytecode engine for more language flexibility) could provide such a unified target. Specially since some console already have linux (PS3, PS2) and other are getting it hacked in (Wii) or have already had (Xbox 360, DS, PSP (somewhat. An uCLinux proof-of-concept currently),XBox, GameCube, Dreamcast... )

Actually, in contrary of what they think, allowing linux on the consoles could somewhat drive piracy down. Currently both pirated games, linux and homebrew all share the same need to circumvent the cryptographic locks that exist inside consoles (either to crack the games, or just to be able to run their own non-signed code). So efforts are shared among all those groups.
If Linux gets an official support from companies, the linux community won't need modchips and such anymore, and in addition to commercial game developers looking for a standard platform, homebrewer will get a platform they can target too, without needing to circumvent cryptography. Thus less efforts go into the development of methods to circumvent the cryptographic lock around vendor specific platform for games.

The only draw back is that cross-platform developers targeting Linux for commercial games won't benefit any more from the copy protection provided by the cryptographic locks and will have to either invent other protections that will work on this standard platform (cue in StarFuck and all associated problems), count on log-ins for on-line games or accept risk and take into account the possibility of being easily copied.

I think that in a couple of years when phones have hardware comparable to say, the PSP, this might be a real possibility. I think the biggest barrier to this will be that manufacturers and service providers will try to control the architecture so it is not open like the pc is. Mobile carriers like Vodafone are scared to death of users using free wifi combined with something like Skype to bypass their voice services, which is where they make all their money (Image taken from Economist article). Sony has already shown they are not keen on having homebrew software.

and can send the unix back

"unix"? All PSP units sold at retail as of September 2005 are running firmware version 1.51, 1.52, or 2.x. Unlike firmware version 1.0, these firmware versions will not run *n?x.

Just a point the ds runs linux http://www.dslinux.org/ while the psp is way behind and problay will only run on version 1.5 http://www.psp-linux.org/

In soviet russia, Linux.. awe forget it heres my damn link. PSP Linux

or Run Linux?

PSPLinux http://www.psp-linux.org/
No not yet.

Their working on it...

psp-linux.org is a fake site owned by a kid who's sole goal is to get people to click on his "Free PSPs" link. First, he lies about making the homebrew hello world app that was released in the last day (hackers hacked in and stole it before they could release it), and knows nothing about anything.

Check out this forum post:
Essentially proof of his lies

people are looking into it already.