Yeah, both could use one, but 360 needs to come out with an improved sku as well as drop the price. They also need to hit the digital movie download path hard by teaming up with someone like Netflix or other rental providers.

This is not a video game sprint, it's a video game war. All three consoles are doing quite fine at their current price points, and as such I don't think any of them needs to take any drastic pricing action. And there won't be any price drops tomorrow. Why not:

- MS is experiencing a shortage of key skus in the US. It's not a good idea to drop the price on a console you can't easily find on store shelves.
- Sony is prob. still losing money on the PS3 at $400. And they'll prob. get a nice lift over the next few weeks with HD DVD's death.
- Nintendo can't keep up with Wii demand.

Many have suggested that price drops will come around the launch of GTA IV. I disagree with that as well. The game will sell consoles. So unless MS blinks, I wouldn't expect anyone to drop their prices then either.

Edit: To answer the question, MS is in a better position to drop the price of the 360 since they aren't taking a loss at the current prices.

 Last I heard it was under $400 to make a PS3, so they are probably breaking even on the cheap system and making money on the expensive system.

But I think that no company will drop their prices but I think Microsoft has the most incentive to do so.  The PS3 has outsold the 360 for 11 or 12 weeks straight now and they got a lot of big name games and big name exclusives coming which will boost hard ware sales.  Microst doesn't have the big name games coming and so to stimulate sales they could cut prices.  That would also give a sales boost to some of their bigger name games like Mass Effect/Halo 3/Gears of War as people will have heard of these games and will be needing games to play on their new system.

That being sad, if Microsoft does drop their price Sony will quickly follow.  I think Sony will drop prices by $100 no matter what Microsoft does as it would put the price of  cheap system near the price of the Wii and part of the reason (I believe) for the Wii's success is its low price compaired to the other systems.  With a smaller cell prossessor that is cheaper to make and puts out less heat, they can also put in a smaller fan (has to do less work) so they would be able to minimize the loss or start making money again rather quickly, they just have to figure out a way to mass produce the new chip reliably.  Same goes for the smaller BD that they have been able to make.

The 360 is obviously the system better suited for a price drop. It is cheaper to produce than the PS3 and has been on the market longer.