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Xen said:

Seems like a desperate gambit to me... they want to win over the market while losing money, in preparation for their 3rd gen console... this is no longer about winning this gen, but a preparation for the next one.

-This may steal some of Sony's sales, but not much and not for long.

-If by making making the Arcade so cheap they are trying to compete with the Wii they are dumb - the Wii is too hyped, popular, and liked to even take a dent.

 

This is not a desperate gambit. This is the natural progression of the 360's price. I would describe the PS3's price drops as desperate, but that is neither here nor there. If they bundled the arcade with Banjo-Kazoie, it could challenge the Wii but I do not think the Wii is whom MSFT is targeting. I think the arcade is meant to target MSFT's target demographic who want to game on the 360, but are hitherto unable to afford it.