Tell me about it! Utter rubbish
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The problem is that if they didn't add a "development" fee into the sale of each game for their systems then the initial price of each console would be a lot more. How do you think Nintendo are managing to sell the Wii for such a low price? Because they are making a lose on its manufacturing costs, and recouping the cost from the sale of software. The same is true of most consoles throughout history.
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Everywhere I've seen says Nintendo actually make a profit (if only small) on the machine as well, rather than taking the potentially risky route of launching and selling hardware at a loss hoping to recoup with software sales.
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That is indeed true. This is the first generation of new consoles where Nintendo took a completely different approach and managed to manufacture the Wii and make a profit from its sale right from the start. This is mainly down to the last generation hardware as the Will's CPU is basically just a faster version of the older gamecube chip.
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According to the latest reports, Blu-ray has been consistently outselling HD-DVD for a very long time now. The week after Thanksgiving, BD outsold HD-DVD by 73% to 27% in the States, despite HD-DVD players being offered at absolute bottom prices at the moment (some as low as $98 - an act of desperation, perhaps?).

In Europe and Japan, the situation isn't much different either.

While the relative numbers are in BD's favour, the absolute numbers aren't quite as impressive, as the market for high-definition video is dwarfed by the world of DVD - which is still a hugely popular format.

The deciding factor in the Blu-ray - HD-DVD 'war' will likely be Warner's decision to start exclusively supporting either format (so far, they have been releasing their films on both). Should Warner hop onto the BD train, that would most likely spell the end for the competing party. If Warner chose HD-DVD instead, it would roughly split the market in two, drawing out the war even longer.
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The Wii being sold out for Christmas and the opportunity to sell more PS3 consoles will no doubt help Blu-Ray.

Back onto your point Sharingan, the low sales of HD-DVD against Blu-Ray may prompt another factor which could help decide the 'war' - either Paramount or Universal deciding that they need to go dual-format in order to keep sales high.
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Sony and the Blu-Ray format do have the big advantage of owning many of the film production companies so films released by those will only ever appear on their own format. These include Metro-Goldwyn-Mayer and the whole of the Columbia Pictures ENtertainment Inc. Which includes such greats as Columbia Pictures and Tristar.
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Whoa that is alot
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Transformers f.ex. is only released on HD-DVD.
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That's because Transformers is a Paramount film, Paramount sticking with HD-DVD for the moment.

The current split is:

Blu-ray

Sony Pictures

* Columbia Pictures

* TriStar Pictures

Buena Vista

* Walt Disney Pictures

* Pixar

* Miramax

Fox Studios

* 20th Century Fox

MGM

Lionsgate

HD-DVD

NBC Universal

* Universal Studios

Viacom

* Paramount

* Dreamworks SKG

HD-DVD & Blu-Ray

Time Warner

* Warner Brothers

* New Line

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