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http://games.ign.com/articles/829/829372p1.html

It seems as though the MS strategy is to compete more directly against the wii in the relm of family friendly gaming systems.  Might not be a bad plan to have an Arcade version to compete with the wii, and then an advanced version with a built in HD-DVD next year to compete with the PS3 more directly. 

I personally think the 360 owes its success to being the middle of the road offering, but that is just me.