Found this info on IGN about this rumor,
US, May 4, 2007 - More breaking rumors out of Australia! Technology website, Smarthouse, is reporting that a new PlayStation console could be coming much sooner than anyone had assumed. This new console might be hitting the market in less than 18 months, if the website is to be believed. The article in question refers to the device as the PlayStation 4, although it would purportedly still use the PS3 chipset, making it more of a PS3.5 than anything else. Apparently, the console would become a home entertainment centre in itself. It would include software for managing the signals being input to your television. This device would hopefully eliminate the need for an extensive home media center.
According to the article's sources, Sony was "look[ing] at a Sony home server based on Playstation technology. This would allow consumers to connect home automation devices to the Sony server while also delivering online gaming and access to an extensive movie and music library." It sounds like Sony intends for this product to be some sort of Tivo replacement more than a competitor with Microsoft and Nintendo's game consoles.
This whole rumor reminds us far too much of the PSX which attempted the same sort of gaming console + media center approach, but garnered limited sales. Sony declined to comment, so this story will remain a rumor until someone decides to officially announce anything.