The price of memory dropped pretty severely during that period.  DVD drives also dropped considerably in price during that time.  The same trends have not occured this gen.  Chopping the price of the Arcade SKU to $149 would be suicidal for the MS games division, at the next stockholder meeting.

Technology doesn't progress in the same fashion from year to year.  You can't expect technology to behave as an older industry does, and get an accurate prediction based on history alone.

Generally true, but not entirely.  Consider that Sony could think of it as an investment into the next generation to "pay" for more marketshare by taking a bigger loss to sell more systems.  Higher market share will mean more development and more mindshare.  If Sony loses more marketshare, they'll become nearly marginalized. 

And who here honestly thinks Sony can pull out some truly innovative hardware and make something that appeals to everyone to pull them from third place into first place?

The primary expenses in making an Arcade model X360 are CPU, GPU, and memory, and to a lesser extent, the DVD drive and the controller.  The CPU and GPU come down in price when the production process becomes more efficient.  Last year's price drop was coupled with a CPU process drop from 90nm to 65nm, and a GPU drop from 90nm to 80nm.  This year's drop had the GPU go from 80nm to 65nm, and was really aggressive.

The price of memory hasn't changed much in the last couple years, nor has the price of DVD drives, and I would imagine the controller isn't phenominally cheaper to produce either.  MS has a 45nm CPU and 45nm GPU "combo chip" in the works.... but I have it on good authority that it won't be ready until 2010.  They've stated several times that they do not intend to revise the CPU/GPU of the 360 again, until the combo chip is ready.

Sony has managed to drop the CPU and GPU process to 65nm/65nm this year without a price cut at all (I imagine to mitigate some of the losses from previous versions of the PS3).  They have 45nm Cell CPUs on target for "sometime" next year (I'm guessing Q2).  The price of Blu-Ray drives has also dropped by a hefty amount this year.  They will probably be able to afford a pretty severe drop mid-year.

You should read your own sig, my friend....

Outside of the hardcore console fans, loyalty for console hardware is a myth.  Sony went from nothing to domination with the PS1.  Nintendo went from 3rd to domination this gen.  Were are all the loyal PS2 fans this gen?

I will.

To OP: I don't think Sony can afford any of those. They need to regain profitability. I expect a $50 price cut fall 09, along with bundling.

A $100 price cut in the spring only makes sense if Sony plans to exit the gaming industry, which I think is quite possible and probably a smart move, but the will probably try to tough it out. Sony cannot really afford a price cut right now any more than microsft can. a $100 cut eats $100 out of their bottom line, same as Microsft. Saying there will be a $100 cut next spring is about the same as saying Microsft will cut $100 off the arcade price next summer. Wii can counter with a $30-$100 price cut any time if sales get hurt froma  massive price cut by the competition. I think Sony is stuck unfortunatly.

I wouldn't be surprised if the PS3s price dropped by 100$ in 2009. I think its more a question of when, rather than if. With the new 45mm CPU and the cost of Bluray dropping quite a bit I don't think its a huge stretch to assume that Sony would be able to drop the price and keep the losses per console low enough that they can make it up with software and accesory sales. I think it would actually be a good strategy for Sony to drop the price soon because I think Hardware will really take off, which means more production which reduces the costs, as well as increases the number of software sales. But everything everyone has sayed so far is an assumption. We don't actually know the exact cost of the PS3 and its parts or whether Sony has a price cut planned or some other strategy up their sleeves.