The game library is not diverse enough. If you love first or third person shooters, then the 360 is your console. If you prefer them with better control on a PC, or just aren't a fan, then you'll have a hard time justifying $399 or even $299 on a 360 right now.
Price isn't as big of a factor as people claim. Yes, the prenium is $399, but the core is $299 and many gamers wouldn't know the difference or really care. Buying a memory card is considered a pretty standard expense for consoles.
The failure rate isn't a big deal among most perspective buyers, except those hard core enough to really know about it. Expect the high failure rate of the 360 to become a bigger deal and get more public spotlight as it continues to fail and time passes. From all reports we see, Microsoft doesn't seem to be doing anything to address the failure rate, the failure of service, or even deal with European watch-dog groups airing information on the tele exposing Microsoft's reliability issues.
There may be a price + failure rate combination that will turn off gamers in the future. At the moment, the 360 is likely considerably more expensive than the PS3 because you will probably need to pay for repairs within a year of owning one. There is no reason to suspect the PS3 has even close to the failure rate the 360 had at the same point after launch.
