You're correct. Almost every console system has been sold at a loss initially. Then the rest of the console's life span is spent trying to slowly recover that. According to some articles linked in another thread about Sony's finances, it sounded like they still haven't recovered the cost of the PS3s.
I saw somewhere that for the average console sale, only 1 to 2 games are sold. That's right, those of us here with tons of games for any system are the minority. Most people by a console and then no more than a handful of games. If you are losing a fair amount on each console and making a small royalty on game sales, getting them to wash out is tough....