In multiple ways Sony made 2007 very easy for MS and MS didnt have to be very aggressive to compete. This will make 2008 easier for MS. What do I mean.
The very poor performance of the PS3 through October in all regions allowed MS to keep the 360 at launch price through July and then only drop the price between $20 and $50 between the 3 SKU's. Nobody saw this coming prior to PS3 launch. People were claiming the PS3 would overtake the 360 in months not years back then. PS3 performance meant that MS didnt need to drop prices agressivly. They can make an aggressive price drop in 2008. It is unlikely that you will see Sony do yet another $100 price drop. I believe it is pretty likely that MS will drop the 3 SKU's aggressively and we will see an XBOX 360 offered for $199.
As for 2007 and the 360 the 360 lagged until E3 when MS finally put together and announced a plan to deal with the RROD. Once they announced the 3 year warrantly and new more reliable versions of the hardware started releasing consumers were not worried about picking up a 360. The first 6-7 months of the year had some people hold back because of RROD. You also had people holding off because of price even now. Sony will still feel that in 2008. After the Holidays the $399/$499 price points will still have a negative effect.
As for software all this great software will be available for consumers even in 2008. It isnt like MS will pull the titles off the market. MS also does have some excellent titles coming in 2008 (Starting at CES we will see more of what the 360 will offer in 2008) and the 3rd parties will support the 360 more now than ever. Sony's big titles wont show until 2nd half of 2008 and likely will have a couple delayed until 2009.
Libraries sell systems not individual games
