Microsoft had two main goals this generation:
1) Stop Sony from domination (and getting control of the living room)
2) Actually making a profit
In part due to their early start and in larger part due to Nintendo, goal #1 is working even better than they could have hoped, so they are working on #2 instead.
Could they deliver a 'death blow' to Sony? I'm not convinced of that, especially since PS3 outsells 360 in all regions except NA. Dodece theory of 360 doing a large cut in the Spring (say just in time for GTAIV) would indeed put a real hurting on the PS3, but mainly only in NA and they have already won that (over PS3 anyway).
At this point I think Microsoft will focus on following Nintendo's tactics (sell consoles at a profit, attract casual gamers) and remain priced below PS3 but not by much.
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