I dunno. MS is just starting to get insane profits (look at last quarter profits) for the 360 which is eliminating RROD cost, and maybe even the original XBox costs in the long run.
I think the real questions are: How powerful will the Wii 2 be? How successful will the Wii 2 be? I think if it's just slightly more powerful then the 360 MS has nothing to worry about in terms of graphics, and if it doesn't exactly fly off shelves MS can still remain competitive with the 360 for another two or so years.
MS can still easily cut their 360's cost by $50 while still swimming in a pool of money as well. A $150 360 at base price with improved hard drive space (say 20gb flash built in vs 4gb) can do pretty well. They can also improve the elite's hard drive space to a half terrabyte and reduce the price by $50. There's plenty of price wars left for MS and Sony to do before this generation is over.
It's just that simple.
