Why would the MS drop the price on the XBOX360? It is not because of the PS3. I think if they drop the price it is because they are worried about the Wii. The Wii price will be between $200 and $300 and they are going to sell alot of consoles at that price. Those of us waiting for a PS3 are still going to buy one.
Those of us scared off by the price of the PS3 are purchasing their XBOX360s right now. So if MS drops the price it is to blunt the Wii sales not the PS3 sales. I think MS has a problem and it will come to the forefront after the XMAS season. The orginal Xbox MS platform has always been a fps platform first and a role playing and action platform second. There has never been much on the platform for smaller children. Wii fits this area to a tee. They are going to cut into MS available purchasers for the Xbox360. This might be why they are so aggressive in their retro gaming products. This will not be enough to slow down the Wii.
Now as for the PS3. The Xbox 360 aleady has the price beat. MS has some so- so games out there and they have their big guns coming up. Gears of War looks awesom as does Halo3. I also like the early reviews of Mass Effect! These will sell some Xbox360s. But the PS3 will sell out because it is NEW first. Second, because it too has some killer titles, SMG4, Kill Zone, Final Fantasy, Grand Turismo, Warhawk (this alone will sell PS3s), Assasin's Creed. Sony already has a stable of titles that PS2 owners will want to play on the PS3. Third, the BluRay drive. It will be the cheapest BluRay on the market and this will drive some sells (I get next gen gaming with my BluRay movies). The PS3 is going to sell out for Xmas just as fast as any of the other models. The question here is how many PS3s can hit the stores to be gobbled up and after Xmas what will the landscape look like?
So, dropping the price is not going to defer anyone currently holding out for the more expensive PS3. Dropping the price is to get into the Wiis market. If you see a price decrease it will be because MS is worried about the Wii taking market share from them. Heck, the Wii is going to take market share from everyone. If my kids were still small I would be buying one! The Wii for them and the PS3 for me.