Microsoft could give every house hold a free console and they would still be in business, but why bother when people will buy at $200 (judging from the threads and interest from US and even *gasp* Japan) ? Breaking even is better then losing $200 outright.
I'm guessing if the chips are as cheap as everyone claims we will see the 360 at $150 next year (Arcade) and $225 or so 60 gig Pro.
It's just that simple.