MS could lower the price IF they redesigned the motherboard and chipsets. They need to significantly integrate the components together to eek out enough drop in costs to allow a price cut. Even then there comes a point when the casing/controller/cords cost more than the silicon running the thing. It might require a refresh of the actual case, which while doable is something MS has never done yet. They might opt for the X720/NextBox instead.

I don't see a need for a price cut. The 360 is selling better than it ever has before, and I don't think another cut would add a significant amount of sales to mix (unless it was another substantial price cut like the $80 cut, but I can't see them cutting the price by over 50% in two years - $300 Arcade > sub-$150 Arcade). We might see a $179 Arcade this holiday, though.

Honestly, I think MS is sitting pretty, and won't feel the need to drop the price (and lose revenue) just to spur sales a bit. Unless they decide to use a price cut and that motion camera in a foolish attempt to take on the Wii.

Microsoft needs more momentum than Sony does. There will be another price cut this year.