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MS will drop price when they see either Sony dropping price or softening of the market for Kinect.  When they do this is what I suspect.

I suspect PS3 will only drop $50.

HDD version of 360 will sell for $249.99.  HDD size will be adjusted this year to be most cost effective size drive.
Flash version of 360 will drop to $149.99.  Memory size could also be adjusted to 8GB based on cost effectiveness.
Kinect will drop to $99.
Kinect bundle with flash 360 will drop to $224.99. 
Kinect bundle with HDD version of 360 will drop to $324.99.



Its libraries that sell systems not a single game.