Going with an off the shelf processor would've saved them a lot. Same thing going with 512mb unified DDR3 instead of 256mb XDR and 256mb DDR3. Going with DVD over Blu-ray would've saved them another $100 or so, too.
I kinda want them to stick with the Blu-ray drive, though, and I think just not going with proprietary or high-end solutions for their CPU and RAM would've allowed them to drop the price to $399 for the base model at launch.
That's really all that would've been necessary, methinks. Though remove Blu-ray too, and they probably could've launched within 6 months of the 360.
Of course, this is all wild speculation based on nothing more then general ideas of component costs. We'd need a specific breakdown of launch costs (the best we've ever gotten were the iSupply estimates) to really say what they could've done.
Edit:
Though they got screwed over by nVidia too. The RSX came in too late, too hot, and underpowered relative to the 360's GPU. Going with ATI would've been the better option, in hindsight.
