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According to gaming news website GamesIndustry.biz, Sony has shot down rumors of a entry-level, 40 gig PlayStation 3.
The rumor was that PlayStation 3 would combat the Halo 3 release day hype with the announcement of a price-slashing. According to an unnamed source at Sony Europe, the buzz is just "rumour and speculation".
Which, if you think about it, doesn't mean it won't happen in the future.
Right now, though: No cheap 40 gig PS3.