This article does make it seem like they are making a profit on hardware even after the price cut.
http://www.guardian.co.uk/business/feedarticle/8164162
Although the global economic slowdown has hit consumer demand, Microsoft expects the overall video game industry to continue growing next year as more people choose to stay at home, said Alan Bowman, Asia general manager of Xbox operations.
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In Asia, market research firm GfK said Xbox shipments in October grew by 53 percent compared to September after Microsoft cut the price of the console to less than $200.