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Current-Gen Price Drop and 360 Shortage
Gamespot is running an article reporting that Activision's Robert Kotick believes that current generation games will drop in price due to the arrival of next-gen consoles. From the article: "Unfortunately for current-generation holdouts, Kotick also said that publishers will quickly shift their development efforts away from today's consoles, which has been the case in the past, when the introduction of the PlayStation 2, Xbox, and GameCube games saw PlayStation and Nintendo 64 development plummet." Meanwhile, the retail chain EBGames has announced that it has presold it's allotment of 360 consoles. From the article: "We are currently sold out of our popular Xbox 360 bundles ... Check back frequently for more opportunities to pre-order an Xbox 360."
For a while into the PS2 life, PS1 games still came out
If by "for a while," you mean "to this day," then you're correct. (Actually, I don't know if that's fair, since I think it's been six months since the last release, but it's still recent.)
It was a great way to break into the market for small developers
No, it was a cash cow for existing developers with mature PlayStation engines (EA Sports, for example), and developed demand for the PSone, which didn't come out until well after the PS2 was released.
Similarly, expect Sony to continue to manufacture and sell slim PS2s for years after the PS3 release. Don't be surprised when they sell like hotcakes at $79 either.
As an employee (slave) of Gamestop. I can tell you that margins on new games/systems is closer to $1.00-$1.75 per unit. The store managers for the chain have no control over how many units are ordered for the store, those units are directly proportional to units reserved at each store on a 1:1 ratio or more depending on the total amount shipped to the distribution center. Why do you think we shove the sub/card down your throat.