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A 20GB laptop drive costs virtually nothing, so if your $40 guesstimate is correct (highly unlikely), that'd drive production costs up $40, and would either eliminate the possibility of a price cut, or put Microsoft in the red once again.

There's simply no need for the Elite to have a 250GB harddrive, I can't even fill up the 160GB drive I put in my PS3.

No matter how much you want it to happen, it won't. Any harddrive increase on the 360 would be the Premium from 20GB to 60GB because that wouldn't cost hardly anything for MS. Just deal with it.