The Hard Drive is only useful for one thing, DLC. It's not needed for online play. And it's definitly not needed for someone with out broadband which is a LOT of people especially casuals.
Currently most people who buy the 360 are hardcore gamers, early adopters, who do go online. But in the future more casuals who just play a few games and dont hook up online will buy in. Core is for them.
Also there is this:
http://www.beyond3d.com/content/news/396
"However, the most likely possibility is the introduction of a cheaper version of the Core. Microsoft's Shane Kim has said that the Core will not be discontinued and that the 360 must reach $199 in order to penetrate the mass market. What this means is that the Core in its current form will probably be phased out and replaced by a new, fully 65nm Core model that costs Microsoft much less to manufacture. That version of the Core will then become Microsoft's entry into the $199 market."
Something might be going on with the Core but we dont know what just yet. Best to wait and see.
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