i'd rather have a bulky cheap 360 than a slim expensive one!

I doubt it. The PS3 design isn't very attractive in my opinion, so I'm not surprised they're changing it.

Good One!

as long as ms makes it more reliable that is good for everyone.

When PS2 released their Slim, Xbox tried to counter by releasing a 'crystal' xbox at the same time. But i guess MS didnt release a slim that time cause they probably figured it wouldnt help the xbox anyways. But this gen i think it'd be a smart move if MS did release a slim however i wouldnt be surprised if MS wont.

Maybe western world doesn't really care about the size of consoles but in Japan slim X360 could lead to boost in sales and that is also reason why I predict that Slim PS3 has biggest impact in Japan.

They already have overheating problems...With a slim 360, there'll be even less room for airflow and it will run even hotter. They could completely redesign the architecture, but then the manufacturing price will skyrocket. Honestly, I don't see Microsoft doing a slim this gen, but I'm sure they will carefully plan their next-gen architecture right from the start to allow such a move.

^ How can they have overheating problems when the console emits half the heat as it did at launch? Furthermore if you took your typical Radeon 4850 which operates at over 80 degrees C operating temperature by design its hard to see the link.

I doubt it emits half the heat it did at launch...The Jaspers do run a bit cooler and helps with RROD, but it did not fix it completely. Sure the video card is ok at 80C but then it's not the video card that's crapping out...

I gather you don't know much about the problems the 360 has then if that's your opinion.  RROD, E74 and most of the other other errors that appear on a dead 360 are all centered around the GPU (video card if you like).  The reliability problems of the 360 is not linked to overheating either particularly, the main causes are quite complex hence why there has been no fix yet.   Below is some of the reasons and this is why a full redesign could help reliability:

The motherboard is very thin despite having a lot of layers
The xclamps should not be on if they are to be screwed in each corner like they are, thus creating a lever pushing the centre of the GPU and CPU away from the board.
The manufacturing process doesn't generate a very good connection with the GPU, often the solder includes micro fractures and voids which over time of expansion and contraction break completely
The case doesn't have enough airflow for it's size and heat output
The internal chassis, particularly on earlier 360's did not have even mounting points for the motherboards so the motherboards are flexed constantly
The thermal compound Microsoft use is rubbish and quickly loses it's effectiveness
Too much stress is put on the board in such a small amount of space aroud the GPU and CPU