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If people can remember the 360's roaring surprise success of 2008, it played out very similar to this.  MS first upgraded the SKU's to have 60GB HDDs, then discounted and cleared stock of old 20GB SKUs and "Cores", and then a few months later they made their big cut to all the new SKUs.

I expect over the next few months that an Arcade Slim SKU with built in wifi and maybe 1GB onboard memory, no hard drive will launch at $199, then when Kinect launches the prices will be cut $50, maybe more.