Things like dropping the price (without changing anything else like offering it without Kinect) would just lose money.
Losing money on the first batch of a console is NORMAL, so both OEMs already committed to what they can commit to.
In fact both OEM's design choices point to them not accepting a long period of losses on the console itself, unlike previous generations,
this one is basically at or very near covering costs or making a marginal profit (especially considering launch bundles or 1 game sale).
MS could drop Kinect, but would doing so really turn the tide in their favor? They would then be at the same price point as Sony but still with weaker hardware and without their one differentiator.
I think the chances of them doing so eventually, perhaps by next Christmas holiday, are high, but they want AT LEAST a year (probably 2) to build up a Kinect base so that devs actually target it.
But both OEM's have already gone with a lower-cost, less-subsidized model...
Rather than throwing more money at a lame horse, MS will likely be content to accept even a 25-30% market share because that can still be profitable.
Even with MS' dominant position last-gen (Sony EVENTUALLY pulled ahead, but MS had a lead for a LONG time, and thus I'd guess the majority of profits from game sales went to MS)
they didn't do amazingly well profit-wise (RROD and warranty costs being a factor), and XBOX division is still looking like a black-hole of RED (business losses),
so sucking up a profitable 2nd rank is just not the worst scenario for them...
If they want to throw more money at XBOX,
I would say they are more likely to do so NEXT GEN after this one, and try to make an actual winner that time.
Both OEMs are highly likely to proceed to the next gen quicker this time than last, given similarity to x86/PC architecture and the possibility to have a backwards compatability.
Backwards compatability should also help game sales, rather than early games having relatively weak sales compared to mature last gen games. That helps profits.
Game devs in fact could quite easily develop 'hybrid' games that not only run on both platforms but actually use the next gen's power for a better experience.
(even more than how PC games scale based on hardware, with just one new gen target, basic gameplay like AI and # of enemies could be tweaked, not just graphics settings)
