Microsoft is in a pretty good position being that they should be able to afford to reduce the price of their console every year from now until the end of the generation:
In 2009 the arcade can be reduced to $179, the premium can be reduced to $249 and the elite can be reduced to $299
In 2010 the arcade can be reduced to $149, the premium can be reduced to $199 and the elite can be reduced to $249
In 2011 the arcade can be reduced to $129, the premium can be reduced to $179 and the elite can be reduced to $199
Microsoft could release a $400 XBox "720" in 2011 and begin the next generation.
In contrast, the best I can see Sony doing is:
In 2009 they can reduce the price of the PS3 to $349 without losing too much money, and to $300 if money is no object
In 2010 they can reduce the price of the PS3 to $299 without losing too much money, and to $249 if money is no object
In 2011 they can reduce the price of the PS3 to $249 without losing too much money, and to $199 if money is no object
In other words, if Sony tries to keep the price of the PS3 at the same level as the XBox 360 elite Sony will be bleeding money
