Unless they move into the cloud domain - in which case, their expertise in both areas (software/hardware) will be complimentary and useful.
Not really - the one piece of the puzzle that Sun doesn't really have is services (aside from support).
It's hard to see exactly what Linux gets Sun apart from "me too" points. They don't want to be Dell.
No - this is where I think the worlds collide. You're basically saying they should commoditize their own hardware to the point where its at parity with Intel. I'm saying they need to do the opposite - they need to increase (or at least maintain) their margins and focus on selling it to the people who really need it - enterprises and top end institutions that value the incredible robustness and scalability you can only get with that kind of hardware. I think trying to do both ends of the spectrum on the same platform is just going to ensure they do neither effectively.
Right now, for most applications, AMD64 beats SPARC. I would love to run Solaris on AMD in production. I can't tho' because Solaris x86 doesn't get tier-1 support from a couple of vendors I rely on. The choices are SPARC/Solaris or Intel/Redhat, and despite the fact that Red Hat is a complete pain in the arse, I can't justify SPARC/Solaris on grounds of better manageability and I can't do AMD/Solaris either. That is where Sun could make some quick wins.
I agree with the software folks trying to become the best deployment platform for web software. There's a window of opportunity while the JVM is ahead of other VMs where Sun could pull this off if they can produce a super stable, scalable, easy to deploy runtime that runs everything from PHP to Python, Ruby and Groovy and make it a snap to deploy and manage. The catch is that I don't think there's any chance they will achieve this if they try and tie it to either Solaris or Sun hardware. That ship has sailed - hosting these days is either linux or windows for all but the highest top tier. They need to completely get over it and aggressively push themselves on linux.