I said it before the PS3 price drop and I'll say it now. The $299 Elite is not the right move. You simply cannot, I repeat, CANNOT compare a $299 Elite and a $299 PS3 and say that the 360 is a better value.
I absolutely LOVE my 360 and I play it every day, but if I were faced with the choice right now of one or the other, each of them at $299, I would choose the PS3. (In a few days, I will have both.) You just can't argue anymore that it's all about the games, so based on features alone, the 360 will lose the sales war this year if it remains at $299. If this drop turns out to be true, and its looking more and more like it is true, it is a result of MS being on the REactive rather than the PROactive.
My prediction: MS will try to get that price down to $249 by the end of the year and leave the Arcade where it is.