Great for consumers, that's for sure...

They aren't the cheapest, they'd probably want to gather part/all of the 100k PS2s sold per month for themselves. Also a 25% cut in price ought to net them at least another 30% sales and we don't exactly know what their intentions are for bundling so its hard to say what a $150 Xbox 360 means for their Natal plans. For example they could offer the Arcade for $150 without Natal and the Elite for $250 with Natal and say offer Natal for $50 seperately.

May i ask why you don't think MS going to £99 with Natal and a new design will not dominate PS3 sales?
The 360 last got a proper price cut nearly 2 years ago. In US the 360 is still outselling the PS3 and in europe it seems neck and neck. The place that makes the gap in others seem big is the "other" section. Which could mean asia and places like that. Overall we currently see a gap of on average 20k a week between the two. A huge factor in this is the sales in Japan i.e the PS3 has been selling around 25k a week while 360 has sold like 3k a week. A big gap there, and will always be that way.

Point being US and Europe are the battle grounds and Sony since the start of 2010 have had the big guns out to try and get those sales. It has worked a dream. The PS3's are selling far more then ever before. But that is to be expected, we are only 5 months since the big price cut and new design. But the 360 is still hanging in there without really doing anything. For about a year MS has not really done much in terms of the 360. This year seems to be the year they have saved up for and plan on going all out.

If they drop the price to that magic price point, have Natal for the £25 expected and have a new model then im sorry but i don't see how it won't have a huge impact on 360 sales.
£99 is very cheap. Lots of current 360 owners would trade in their old ones to get it, i would because it could mean paying something like £50 with exchange from your old one. That is the equivelent of a price for a new game.

Then you have all those potential Wii owners who want something a little more flashy to play while doing the gimmick thing. Like for example if it can teach you how to do kung fu or some martial art while tracking how well your doing via your movements that will have serious appeal to people. It is like that matrix bit where they give them the talents via download. The opportunities are endless.

If that happens, which it looks now certain it will then i would expect 360 sales to utterly crush PS3 sales, i mean Wii type levels. If 360 is only around 20k or so a week now behind PS3 while also selling more in US and UK then a cheap version will give it an even bigger lead. Which would have to translate into bigger sales worldwide.

I think they might keep the price the same but bundle natal with it.

Thats why you use the usb drive to transfer your saves over.

I'm not understanding why there would be a limit of 32GB. Could someone please explain this to me? I have a 250GB usb external hard drive hooked up to my macbook right now. Why would that be incompatible?

Well its been years since the 360 saw a real price drop and its now the poorest selling console every week.

Droping the price further will boost console sales. That would also help the sales of the Natal, software, and Xbox Live Gold subscriptions. They have more to gain from a $50 price cut than they would lose.

You could use all 250 gigs if you only wanted to use it as media storage(pictures, movies, music) but if you wanted to use the hdd for gamesaves, dlc, game installs you would only be able to use 16 gigs of that space, and you'd have to format the harddrive(Which deletes everything)

It won't read USB memory sticks any larger than 16GB.

No big deal in my opinion. 16GB is plenty of storage for DLC and people can have multiple sticks ofcourse.

Exactly, Since Ps3 slim came out the 360 has totally lost steam in europe, and to some extent the US too.  A price drop with Natal, A redesign, Halo would boost sales tremendously.