MS have dropped the price of the console too many times already, cheaper doesnt automatically mean a more attractive product. If the machine gets a price drop every 6 months or so, people start holding off making a purchase expecting it to happen.
They need to sort out the bugs in the hardware, I know plenty of people are either sick to death of returning their machine to MS or have just sold up and bought a PS3.
They also need more attractive games to people who dont want to kill foreigners all day in a brown world.