Squilliam...
Most of the positive flow in MS' E&D division is from X360 software, and I would argue that, despite 2009's fine lineup, the 2008 lineup was superior. Also, consider the following:
The price of console XYZ is $280, and the per-console profit is $40 (with brand new hardware), split amongst retail, MS, etc. Chop price of console to $200, and now the loss is ($40) per unit. Software sales for a good lineup cover that loss well, despite the rising console sales. Accessory, and bundled accessories (mostly HDDs with pricier SKUs) also help cover the lowest price units losses.
What happens if the loss from that console increases by only another $20 to ($60), and sales rise even more, without the software to cover its back? What happens to the Pro SKU, which was, perhaps, making the majority of the hardware profit covering the losses from the Arcade? Does it only drop by $20, or does it drop by more, to make the loss-inducing Arcade not so appealing?
IMO, only the Pro/Elite SKUs can afford a cut -- even a small one. They can't cut the Arcade more... that'd be very dangerous. The mole rumors of the Pro/Elite SKUs being basically made identical and sold at the price of the Pro is probably right on the mark.
