I don't get the impression Microsoft will try to one up the PS3 in terms of hardware. People are still hesitant over the PS3 even with current pricing despite what you get and if MS makes something that ultimately would have to cost more in order to have the kind of hardware they'd need to be better, that would be a big mistake. Not to mention the Wii has been extremely successful with lesser graphics and hardware and a lower price. It will be interesting to see what MS does - I think they will have to basically equal the PS3 in terms of hardware, charge less for it, and offer some additional features possibly on XBL (or make XBL free, or a limited access free account). I am sure MS is thinking about what they need to do to beat the PS3, but if they wait another year or so, they will have a better system that will simply be surpassed again when the "PS4" comes out and they will be the ones fighting a system that already has years of development. At first I though Sony trying to release so far behind the 360 was a mistake. Now I think it was actually pretty smart...