First of all, Kinect is a gimmick. Simply put. Sure it may offer advancements in user interfacing with voice commands and such but that's it. It makes a nice party show piece but when it comes to actual games it falls short.
If I may use Sony's upcoming PS3 Move and the PS3 as a whole. To start, Kinect has the gimmicky games (think Wii Sports) like Kinect Adventures and such. What they don't have is hardcore games like first person shooters. Face it you can't do FPSes with Kinect. In comes the PS Move which can offer FPSes. For me in this respect I would rather have hardcore games than gimmicky games.
Next point is this. With Kinect I can pretend to drive a car by holding my hands at 10 & 2 while playing Forza motorsports or I can grab a steering wheel and play the GT series. This is a concept I could act upon already. Also what bugs me about Forza is with the inclusion of Kinect support it further makes itself less certain what it is trying to be. I mean we cannot honestly call it a real driving sim like the GT series if are hands are to be the wheel. Also it has no gimmick like NFS, Split/Second, Blur, or go really far Mario Kart or ModNation Racers.
About the only plausibly interesting game that Microsoft unveiled for Kinect was the Dance Central game by Harmonix. However this game is only interesting because it is new, not because it is only Microsoft who can support such a game. I would imagine, in theory, that Sony and the Eye could support such a game if they so chose to do so.
Getting past all of that then Kinect hardly seems justified. I mean I am not going to spend upwards of $300+ just to own Kinect when the only cool features it will offer would be is voice recognition, visual recognition, and apps that use these technologies.
Now as for what Sony should do to compete against Kinect. They really needn't do anything other than offer a killer price. I mean Kinect is novelty that eventually wears off or dies off. The main buyers of Kinect will be young children (I mean 8 to 11), older generations, and those who think owning such a product will elevate them to a level of cool most people dare dream of. However the children eventually grow up and the old eventually pass. The children however will eventually want more. If Sony offers the right price they will give the children more. Sony and the PS3 already offer the most versatile platform. I needn't mention all of it's capabilities. Add on to that 3D and the Move it's an instant seller. The children and older adults can share in the joys of the Move, while the regular adults and teens can enjoy the wealth of media possibilities (Blu-Ray, etc.) and core gaming experiences like FPSes and console exclusives.
Can Sony offer up something with a bigger "Wow" factor than Kinect? No, especially if Microsoft is paying millions for Cirque De Soleil to help advertise. What Sony can do is offer a hugely convincing price point. With the economy in a downturn with no instant and/or significant recovery in the next few months, offering a PS3 with the PS Move at a price significantly lower than a 360 + Kinect could say a lot to parents looking to buy a new console for their child. Even better is if these parents can garner a little intelligence and realize the true potentials of the PS3.
I know Sony's big move (pun intended) is that the PS3 can do everything. If they can briefly but clearly show to everyone this point, along with the new PS Move and 3D, Sony has a strong chance at winning.
Oh and to wrap up this TL
R, to those complaining about PS2 BC support for PS3s. Get over it. If you wanted it that bad then you would have bought a launch console or one of the one's that had it. If you are coming to us now 3 years after the console has launched asking for such a thing I don't think you truly need it. I know of no one that has a bunch of PS2 games lying around without a PS2 console begging for a PS3 with PS2 BC support. Sony only chose to include the feature in at launch because it knew loyal fans would have such a large library of games that they would want to continue to enjoy. Sony figures by now, if you haven't bought a PS3, then you already own a PS2 and that a PS3 with PS2 BC really wouldn't be necessary. Sure it may be nice, but Sony won't go through the efforts include such a feature, especially if it costs more, when really what's the benefit you get to drop one of their consoles and maybe get a small graphical upgrade (thanks to upscaling).
All in all, Sony is poise to be the big hit (unless Nintendo finally decides to offer a console that is as good as the PS3... like that'll happen, haha) but only if the price is right!
Oh and I already expect thumbs down for the TL
Redness of this comment.