Microsoft is focused on profitability.
MS could try to make their online better -- for example, they could use centralized servers like Sony does with the PS3 (much, much better for most games), or they could offer it for free like Sony does, or they could improve the reliability of their consoles. But MS doesn't want to, because they're focused on profitability.
Why should MS drop the price of the 360? A big percentage of their sales are Elite unit sales, which are sales where users are effectively donating $100 extra to MS because, aside from the increased (and still relatively small) hard drive space, it's identical hardware to the Arcade and Premium systems.
I also don't believe MGS 4 will make a huge impact. It will have some impact, obviously, and maybe the PS3 will outsell the 360 in June because of it, or maybe because of the $100 walmart/best buy deal, but it's not going to have the kind of impact that will get MS' attention.
