Given that most people probably don't have enough space in front of their TV  for 4 people to play a Natal game at the same time, I don't think being cheap for 4 players will help much.

Furthemore, that's not usually how a person will think about a price. Each controller is cheap, and you can buy them one by one if you think you need more. If Natal costs that much, it will be a big upfront investment, it would have to be really appealing to succeed at that price.

Why do people keep bringing up 20GB HDDs to be bundled with the low tier XBox360? It's never going to happen as a 20GB HDD would, in all likelyhood, end up costing more than an 80GB or even 120GB HDD. If anything, I could see Microsoft tossing in a 16GB flash drive with the Arcade model.

As for Natal, I'm guessing it'll be around $100, maybe more. This isn't something they can milk for people who want to play with four players, it's a one-shot deal. So I'd expect them to try to make a decent amount of profit with each one sold. If it's a success, then huge profits for Microsoft. If it's a flop, then at least they managed to wring out some money from it's failure.

I think Natal will cost 99$ and will come bundled with a tiny minigame collection.
A price with 3 digits would put many potential customers off, and I don't see why it should be that expensive to build an improved webcam.

It say $59.99 by itself or $99.99 bundled with a game.