I think Microsoft isn't even looking at Sony anymore, to be honest. They're totally mesmerized by the Wii's success. This could prove to be beneficial for them, or it could prove to be not-so-beneficial. On one hand, they could potentially capitalize on the Wii's success, on the other hand if it fails, then they also could lose some ground against the PS3. Kind of an interesting situation.
Natal is the future for them. They are basing the next 5+ years of the Xbox 360 on Natal. RARE has transitioned 100% towards Natal development, and they don't really appear to be funding new projects/IPs that are hardcore anymore. They're relying chiefly on Halo sequels. Because of this, they risk abandoning the core market. Though, Microsoft probably feels that releasing a new Halo title every year is sufficient when coupled with third party releases. Again, it's a gamble...their casual games have not been successful.
That's why I don't think they'll budge on price...they're already at mainstream prices. They will likely have a hardware revision + natal bundle for next year somewhere between $199 and $299, but I don't expect a $150 Xbox 360...I don't expect a $199 or even $250 pro/elite. Could they bundle? Sure, and they probably will since they use that strategy a lot. But there's not a whole lot they can do to undermine a PS3 Slim + $299 + potentially PS2 BC + the exclusive PS3 lineup + Blu-Ray.