I would love for them to do it but I don't think its a smart move for them. I just don't see microsoft giving up on selling basically 1 extra first party game a year to a very large portion of active xbox users. No matter how many other features they add if they drop pay to play online the subscription base will plummet. Those lost subscriptions being negated by the increased sales of the system is very unlikely, especially if the system is getting sold at a loss.
This is a quick example. Let's assume dropping paying for online increased 360 sales by 10mil up to this point and even significantly increased the software attach ratio, but lowered the subscription base dramatically. Most software sales are third party so the money gets split to a lot more entities, but money from xbox live gold is only split between the retailer and microsoft.
Typical year
80million 360 install base, buying an average of 2 games($15 goes to microsoft) and 1/2 of them paying for gold($50 goes to microsoft) =$4.4billion
90million 360 install base, buying average of 2.5 games($15 goes to microsoft) and 1/10 of them paying for gold($50 goes to microsoft) =$3.915billion
Microsoft still gains more money from keeping multiplayer pay to play only. It would take a massive increase in install base or software attach ratio to negate lost gold revenue.
They could and probably will try to add more value to xbox live though.
