Yes, I meant that MS defended their position that a non-HDD SKU was needed from the start to reach the critical price point (in time). They were taking a lot of heat for selling "a crippled console" etc. Now we will see if that strategy will pay off.

350/450 is possible but 300/400 seems out of the range of a company that needs the PS3 to be profitable in the long-run.  If MS *almost* makes money on the 360 overall its a very nice upward trend.  If Sony losses money its a massive downswing from PS2 that will make investors twitchy about doing a PS4 WITHOUT the dominate brandname that would have died this gen at the hands of Wii.

Sony wants to win money, the generation would just be a nice added bonus.  It's the same for Microsoft, only they are scared that if they start losing by too much their console will never recover and will fade into obscurity (given its lack of brand-power, this is probably a reasonable fear). 

Wouldn't an $80 all SKU cut in the USA bring the arcade to sub-$200 levels?

 Yeah, but Sony *has* to move software to become profitable, and that'll only happen if they sell more, and they'll only sell more if they have more consoles out on the market.  They need to get PS3s out there, no matter the loss, so they can make it back in software.  I wouldn't care if they were selling it at a 200 dollar loss, as long as they were having a solid attac rate, it'd all be cool.

But you have to remember that Sony only makes $20 TOPS per game sold, more for First party (though my original estimate could be too high).   So unless your talking about an attach rate of 15 games per console (some games will be budget or discounted, and you need to make enough to PROFIT not just break even) then a $200 loss is far too big to sustain for long.

As for the bolded part I totally agree, its a vicious cycle. 

Last gen all Sony really had that mattered was the PS brand. Now with Blu-ray being synonymous with Sony, and the LCD business about to take off Sony can afford to lose a little on the console to win big on software.

Then again...with blu-ray won and MGS4/GTA4 guaranteed to move good amounts of consoles, could Sony just go for being profitable over being the victor this generation?

Im positive we will see a price drop by years end with smaller cell/rsx, but I am actually not so sure we will see the price drop soon. Bad news in NA for GTA. However, unless RRoD is fixed for the most part, a huge increase in sales around GTA might do more to hurt the Xbox than help it. I doubt mainstream adopters who arent fanboys will stand for sending in their console every 4 months.

Price cuts in Norway differs from rest of Europe. Only Arcade sees substantial cut:

Arcade: Down 700 NOK ($137) to 1700 NOK ($332)
Pro: Down 400 NOK ($78) to 2300 NOK ($449)
Elite: Down 300 NOK ($59) to 3200 NOK ($624)

Wii is 2600 NOK ($507) and PS3 40 GB is 4000 NOK ($780) i Norway.

 Vicious, it's horrible. 

But Sony was losing a reported 200 dollars when they first launched a few years back.  Reports are that they're breaking even on the forty gig, and the PSP is having strong software, and PS2 isn't dead, I think that they can sustain a price drop of 3/4.  Even if they can't, just do it to keep it competitive.  With the Arcade being less than the Wii, and Nintendo not dropping the price, it will be like launch all over... and we all know how that went. 

Wow, great move by MS. They said they wanted to focus more on Europe, but up until now they hadn't really done much.

It looks now like sales will totally dry up for the 360 in anticipation of the price drop coming this Friday, after that I can't wait to see how the 360 does!

That's a huge pricedrop. MS must mean business about trying to get back on track in EU. I think that we'll see MS take the lead for a few weeks and equal out in a month or so. PS3 was selling quite a bit more beforehand.