In an interview with Nikkei, SCE's Masayuki Chatani, from the company's strategy planning department, has revealed that not only were Sony looking at making the Slim even smaller, but that they were looking at some fairly radical solutions to the problems of HDD sizing.
One of those was to use flash memory instead of the conventional HDD the PS3 currently uses, which would have cut down on the size, running costs and even noise levels of the console.
Another was to leave local storage out of the equation altogether, and instead rely on the PlayStation Network to save all of a user's game data, personal files and settings (similar to how Gmail works, for example).
Chatani says Sony "considered both options", but in the end, "felt that the price would be too high for the amount of storage capacity the PS3 needs", so they stuck with a conventional HDD.
He also says, when comparing the Slim with the PS2's redesign - a model that made far more drastic cuts to the dimensions of the console than the Slim has managed - that reducing the size of the PS3 even further was a possibility, but that in order to do so, the machine's power supply would have to have been made external (as it was on the PS2 Slim), which "would have imposed restrictions on transport and use, making it harder to use freely."
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