If the PS3 drops to $299 in March (highly unlikely $349 sound more realistic) all Microsoft would have to do to counter is add a 20GB hard drive to arcade models and leave them at the $199 price point as for the Pro/Premium and Elite model MS may drop the price but not as drastic. I think MS is already leaning this way after saying newer Arcade models will have 256 MB internal storage. I predict by the end of 2009 Arcade models will have hard drives.