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Not sure if anyone mentioned this, but my solution that I came up with a while back would be to remove the wi-fi. I'm sure that would cut costs at least an extra $20-30 right there. Then offer an add-on for those that really need it. They could also make a version with a smaller hard drive. Bring back the 40GB model with no internal Wi-Fi and you have saved $20-30 more for a total of $60 cheaper model. Then all they need to do is finish shrinking the processors (GPU/CPU) and they will have shaved enough cost to afford a price cut, or offer a cheaper model.

I can't think of anything else they could do to cheapen it without crippling it in a major way.