I'm seeing some pretty crazy talk here, even from people who's opinions I usually respect. When it comes to the 360 price drop all reason goes out the window. Some people have made some good points.
These are the factors pressuring a price drop:
* it's about damn time. the 360 is the console that has gone the longest time without a price drop. Consumers have been conditioned to EXPECT a price drop by now so people will wait for one they KNOW is coming.
* Sony just dropped the price. This increases point one even further, but at the same time the gap in price has been dramatically reduced and it looks like it's had a pretty good effect.
Microsoft can fight those two pressures by releasing great games, but there gets to a point where games just can't cut it anymore. A $50 price drop relieves ALL of that timing based pressure for another 6-8 months, while they again increase the gap between it and the PS3.
A $100 drop at this stage of the game DOESN'T MAKE SENSE. The marginal increase in sales will not be THAT much higher, and MS will STILL gain all of those mass market benefits of $299 next year.
The Wii is selling like gangbusters but right now it's a different segment of the population than the one that is interested in the 360. With things like WiiFit coming out this is even MORE true. So MS isn't actually faced with much pressure from the Wii right now. This year is about MS taking on Sony. Next year is when the Core will drop to $199, and a $299 premium and when you'll see a lot more casual games get released for the 360 as it combats the Wii.
Halo 3 + GTA4 + the rest of the ridiculous lineup already ensure that MS will win this holiday season in regards to unit sales (NOT INCLUDING THE WII) and this $50 further cements that. With WiiFit the Wii will still win the sales game though. I honestly think it's goign to sell a ridiculous amount.