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"Cheap cost= more sales=more games purchases"

Not necessarily ... the people who've waited to buy a xbox now because of it's low price, will probably show the same patience before buying a game to drop in price, or search for bargains / 2nd hand games.
Those people are not going to buy Mercaneries 2 or Gears Of War 2 the day it comes out.

I do the same with the PS2 games, there are a lot of great games for less then 20 euro, sometimes just 5 euro and there are a lot 2nd (platinum) games for 5 euro.

So essentially those people wil not generate that much revenue and I'm curious how these hardware price-cuts convert to software-sales.

But it's obvious that MicroSoft is planning to 'bribe' this holiday-season: In the Netherlands / Belgium the effective price-cut is even bigger because of a coupon action: you can get an arcade for only 150 euro ( that's about $ 214 including vat )

But more on topic: I think everything is possible now, it's up to Sony to decide, but I think they will let the games do the marketing