I think it's arrogance on Sony's part. They've led the console wars longer than either Nintendo or Sega (11 years Sony, and anything beween 1988 and 1995 was basically squabbling beween the two Japanese companies). They've been sitting pretty for a good long while atop their might sales figures. However, if a newcomer like Sony could unravel one of the major two rival hardware companies (being Sega), then Sony really need to start seeing Microsoft as genuine competition.
I think neither are worried that their target audience is abandoning them to Nintendo (although many may make that purchase also, as I plan to do when they're under £100), but at least Microsoft are taking Sony seriously, despite the lead they have. They know Sony are the most popular brand amongst their target demographic, and know that their lead could easily be swept off, and work towards pushing that eventuality at least further into the future. Sony just seems to think it can sit and wait, and things will happen for it. If they want to win against Microsoft, they're gonna have to pull something major out of the hat.
I think neither are worried that their target audience is abandoning them to Nintendo (although many may make that purchase also, as I plan to do when they're under £100), but at least Microsoft are taking Sony seriously, despite the lead they have. They know Sony are the most popular brand amongst their target demographic, and know that their lead could easily be swept off, and work towards pushing that eventuality at least further into the future. Sony just seems to think it can sit and wait, and things will happen for it. If they want to win against Microsoft, they're gonna have to pull something major out of the hat.