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The 5.4m lead really doesn't mean a whole lot considering that's virtually what the 360 sold its first year. Granted there were inventory shortages, but MS had an entire year to sell their next gen system with the only competition being last gen hardware.

Without having seen any of the games, I just can't see Natal as the great white hope for the Xbox that's going to turn everything around, but by the same token; no one's seen any of the games, so it's too early to really have a legitimate opinion. Wait until E3.

It may well be that the first batch of Natal games are novelties and little more, with later efforts offering something genuinely new and unique.

As for the price cut/hardware repackaging; the main point of redesigning the casing would be as a cost saving measure, which would presumably mean a price drop for consumers if the chipset can be reduced, the CPU/GPU reduce further enough in size to shrink the cooling system and lower the power consumption.

The problem is that if MS wants to bundle Natal with all Xboxes (which they should if they're really banking on it as being a major part of the future of the system and potentially the next Xbox), the price drop could effectively end up being a "free" Natal package, meaning we'll still see a $299 Elite bundled with Natal and hopefully a good Natal game.

It would be similar to last year's $100 price drop, which was effectively replacing the 60GB SKU with the 120GB SKU for the same price. Not exactly the same as SCE knocking $100 off the price of a PS3.

Since I still think MS can sell the Natal unit separately to the current user base for around $50 (the price of a controller), I have a hard time seeing it being bundled for anything less than $250 unless they're banking so heavily on it moving consoles that they're willing to start taking losses on every bundle sold.

It seems doubtful we'll see an Arcade Natal bundle going for less than $199, but if MS can make it happen without taking a bath over it, great.