Yep, but that is exactly why a publisher like Sony will be supporting publishers like Insomniac to get those games out ... you need both games and price cuts to make your device appeal to a larger demographic, or you'll get the chicken/egg situation. That's why it is so important that a hardware platform is backed by good software. Once your platform has gained critical mass, other software will flock to the platform automatically. It's harder than it looks too, because you also have to think about what kind of target audience / demographic you are aiming for. You've critiqued Microsoft for not sufficiently trying to become the next PS2, but they are on a timeline - their hardware won't age gracefully - and they may be better off to try and get a richer demographic that has a very high yield, buys a lot of peripherals, and take it from there. I honestly have no idea at this point what will pay out more significantly, but Nintendo is showing that focussing your target audience can make you a lot of money if you match your hardware properly. In theory, you could end up with two of the platforms taking up two significantly different parts of the markets in such a way that it leaves very little room for the third platform. In practice, I think there's plenty of room for all three platforms (or four if you count PC, and in a sense previous gen hardware will continue to play a part as well as handhelds, of which there are now two players, etc.)
In the meantime, being the first significant game in a certain genre on a platform and being generally very good, you can end up having sold a lot of titles over the life-span of the console. If you look at the list of best selling titles on the PS2 for instance, it's surprising how many early PS2 titles that got significantly better iterations later on in the lifecycle, still have their best sales with the first version and they rank very high to boot. It's partly to do with building your name, and partly to do with reaching that Platinum status that allows you to sell to the next market segment in terms of cost of entry to the game.