This news should not be a big surprise to the folks that where paying attention last August.  It was already reported that the new 65 nanometer chip set would be coming to Xbox 360s this fall by Dean Takahashi.  These smaller chips will produce less heat and will reduce the cost of manufacturing because a smaller chip means you can produce more from one silicone wafer.  Now all Xbox 360s currently come with the improved heat sink and consoles sent in for repair get the new heat sink retrofitted (mine did last Feb).  The new chip set will resolve the over heating issue that was warping the motherboards and causing the chips to pop out of place causing the dreded 3 red lights. 

This 65nm chip set release has been a bit over due since Microsoft hopes to be able to shrink the chip set every year.  The goal is to get both the GPU and CPU all on one chip to help cut cost.  These cost savings are then passed on to the consumers in the form of price cuts.  Microsoft's $50 price cut on the Pro model was done before the new chip set  made it into consumer hands.  I doubt we will see another 360 price cut this fall in the US but I would expect to see a larger price cut next Spring. Looks like instead we will see holiday bundles for the 360 with Forza Motorsport and Marvel:Ultimate Alliance packaged inside.  Two free games should help sweeten the deal for a few folks.


Sources:
blogs.mercurynews.com/aei/2007/08/exclusive_what_microsofts_falcon_project_is_going_to_mean_for_when_you_should_buy_an_xbox_360.html
http://kotaku.com/gaming/cooler/xbox-360-falcon-chips-have-landed-305370.php
http://www.xbox360fanboy.com/2007/10/01/evidence-of-new-xbox-360-holiday-bundles/