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the PS3 is the cheapest option out there

Wrong! http://www.tvauthority.com/HDDVD-BluRay-Players/To shiba-HD-D1.asp?aff=5183

And that took me about 5 minutes on froogle. Come on, at least put some effort into it when you're buying a device that costs hundreds of dollars.

Blu-ray

Nope. Try this, among others.

PS3 games

That's one thing, although it's arguable whether any of the current games are even worth owning, and games that haven't been released yet don't count.

Cell processor that can be a 60 gb Linux machine with built in wi-fi

The Cell processor is horrible for general use, and takes a lot of work to optimize an application for. Outside of the PS3, it's only good for hobbyists. You can build a 60 GB Linux machine with wi-fi and a multitude of other features for far less than $600.

My store sells IDE bluray drives for $750. These are burners too. (No idea why we still don't have SATA Blu Ray drives, but that's annother matter...) Our cost on them is like $600, IIRC.

You can now purchase a stand alone bluray player for around $400 (first link on a quick froogle search).

Now, that may still make the PS3 a good value, *IF* one cares about bluray. But let's not overstate the value that it has. PS3 without bluray would probably cost roughly $400 (A semi-educated guess as to the true cost of making these drives) less to manufactuer. That savings could either be passed entirley on to the consumer to get more into people's living rooms, it could be used to keep the PS3 from being as much of a loss leader for Sony, or a combination of the two.

Sure you can, but without any consumer-level display devices that will accept 1080p over component, how are you going to see them while you play?

Take a look at the specs for the Samsung HL-S5687W. It reads:

2-component video inputs
(480i/480p/720p/1080i/1080p)

Yes I admit somewhere just under $3k is somewhat expensive for a TV. But lots of people are buying HD sets that expensive nowadays. I'm also sure there are less expensive examples, that's just the first one I came up with in ten seconds of googling.

What you have forgotten is that if Sony had planned to have a base model that supported 1080p over component for some time, they might just have TV makers making displays that can accept 1080p over component inputs as well. It's called "strategic alliance". Furthermore these same TV makers, being no fools, could also independantly note that a console about to sell a few million units will offer 1080p over a component input and move to support that.

My money's still on DLP.

I have a fairly cheap LCD TV / Monitor, and I can see a small lag when I don't send the audio through the TV: I think the TV's audio subsystem includes a small delay to compensate for the video lag. But it's very short and not serious, only becomes obvious when the input signal is poor. I recall a report - I think it was in Sound On Sound (paper magazine) about how lag had been seen in recording studios with plasma screens. They use dedicated audio mixers and monitors, so when synchonizing audio to video the lag became noticeable, and they had to look for alternatives for frame-accurate sync. 1 frame at 25fps = 40ms - a real issue in some cases. I concur with the need to check the specs, I'm now seeing LCD monitors where "quick response" is in the marketing, e.g. Samsung LTN-325W.

The research I've been doing is in the $4000 range and I've decided on DLP.

There is no "burn-in" and the consoles are significantly thinner (not plasma thin, but thinner than traditional rear projection units.) The picture is pretty awesome at all angles and the technology is really cool.

Info on DLP concept.

A vendor (Pricey, but informative.)

Rumors are around that sub-$1000 DLP systems will be out by the end of the year.