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The $299 price is temporary according to Ars Technica. Its like the 60gb with the PS3. The drop is to get rid of stock and release another model at the old price.

http://arstechnica.com/journals/thumbs.ars/2008/06/30/mole-microsoft-to-drop-price-on-20gb-360-makes-room-for-60gb?bub

So $299 20gb discontinued
$349 60gb. Maybe new more reliable hardware?