Now I'm getting a bit confused. Are we talking about the hardware or the software? Both relate to cost. For software, it can range from things like programmer/designer ability, limitations of the engine (fancy speak for program the game is built on), budgetary constraints, etc. Mainly budget most likely. It's incredibly expensive to make a game. Can't do it all and still hope to make money.
That's a wonderful opinion. I wholeheartedly disagree.
Of course. To make the machine more powerful, you need more expensive parts. They also tend to generate more heat. That means the machine has to be bigger (see gaming desktop PCs for example) or you have to increase costs even more to get smaller parts. In the end, the business (Sony) has to decide if they'll be able to even sell the console. If it costs $2000, for example, how many less people will be able to afford it? Will it sell? These are the concerns they consider.