So many threads about this, guess I'll throw my opinion in the shortest one.
I don't have a problem with the two SKUs, nor their pricing. I couldn't find or assemble a similarly capable gaming hardware package for any less in the same timeframe as the X360 will arrive. The pricing on some of the standalone accessories is a little naff but getting the 399 SKU deals with that issue and there's presumably the possibility of cheaper 3rd party versions of these peripherals.
The kind of subsidies that hardware manufacturers have been willing to front us on the platforms they build to our higher and higher expectations were bound to start disappearing sometime.
In terms of business strategy, it certainly bruises MS's image among current xbox owners since it doesn't at least keep whole everything that Xbox owners have come to expect so far. And while Sony will likely also be raising the entry fee on console gaming with the PS3, MS will be the first to do so and in this regard will suffer from being first mover because they will the first to break the bad news to the marketplace.
In terms of HDD utilization for games, I'm not concerned. Network connectivity wasn't supported out of the box on any console this gen (needed XBL to legitimately activate it on the XB and you needed an NA on the PS2) yet plenty of games have been online enabled. As long as the HDD promises significant benefits for in-game use and can be shown to be owned by at least a modest portion of the marketplace, it will be supported decently.