I believe that MS decided to strike back at Sony in the battle between the PS3 and the 360 by not striking back. 

Sony and MS have both released thier last quarter results and the division with the 360 for MS made some $300 million and because it is safe to assume that other products in that division are still in the investment stage the 360 was even more profitable.  While Sony Network division lost $654 million.  The division is made up of Vaio computers, Walkman type devices, PS2 and PSP as well as the PS3.  The PS3 is the clear product in that division that is causing the losses.  PS2 and PSP profits sheild greater losses than the $654 million.

I have been puzzled why MS didnt really cut the price of the 360 and rather just added 60GB of HDD space to the HDD based model (was the pro and now the elite) while pulling out accessories that can be sold for a tidy profit.  They didnt cut the Arcade price and pulled out any bundled games.

So it appears to me that MS has decided to enjoy the profits of the 360.  At this point it doesnt matter if the PS3 catches up a few million between September 2009 and September 2010.  MS knows that they have 3rd party development support locked in for the remainder of this generation.  So MS is going to take the profits and invest them in Natal and other 360 related efforts (new IP development, etc.). MS knows that they can make a big splash with Natal release if the price is very attractive.  So the profits this next year will be used partially for Natal release.

well did strike back, it just not worked.

they cut the price of the elite by 100$

that they did failed to do was redesign the console

or unless u don't call ps3 slim a price cut, just adding 40gb, and making it smaller.

Here's the rub - MS is calling the shots in the HD arena, not Sony. Last gen, though the Xbox was superior, MS was running the entire time. Sony was the one in the driver's seat. They could cut the price - MS couldn't. And with the NVidia lawsuit, MS learned a very costly lesson.

This time, with MS making profits, they can afford to let Sony trim the lead to 4M without cutting the price. Even if it backfires initially, that's ok. I am positive it will thwart the Slim surge and keep Sony in the red - again.

I see life for what it is. I am not fooled by looking at the world through rose-colored glasses. And there's no way - unless you are a devoted Sony or PS3 fan - that you can defend Sony's gaming division losses.

As you said MS have been leading Sony around for the last three years. Whether it was Xbox live, achievements, or even preference with most developers. MS as of now have more options than Sony should they need to fall back on it such as further price cuts or buying away more of Sony exclusive titles should they feel the need for it. Sony seems to have wasted most of its resources just trying to put out the slim for the holidays.