Sony has recently announced the a new slim PS3 at the European game convention, Gamescon.  This new PS3 is slightly smaller than the current PS3 and contains a 120GB HDD.  The device is now the same length of the Xbox 360 but significantly less width.  The device drops the ability to install an alternate OS but comes in at $299 which is a $100 price drop.  The System should be available at the end on the month according to Amazon.com.

I believe a lot of former PS2 owners have been waiting for a cheaper PS3 so the $100 drop will significantly improve sales.  The slimmer version is nice enough for some people to replace their existing PS3.  The original PS3 is a very large device and doesn't fit well in some entertainment centers.  I do wonder if the price cut will goose sales enough to push the PS3 closer to Microsoft's monthly sales.  Currently the PS3 sells about 200,000 units per month compared to the 360's 260,000 per month this year.

Sources:
wired: sony-drops-price-of-playstation-3-unveils-slim-model
whattheyplay.com: ps3-slim-shipping-early-aug-25-says-amazon