A Kmart weekend ad for the week of September 7th shows that the Arcade will drop to $199, 60GB Pro will be $299 and the 120GB Elite will be $399.  This will place the cheapest Xbox 360 model $50 less than a Wii and half the price of a PS3.  Will this price cut help boost sales through the holiday?  I think you'll see a lot of Xbox 360s move in September, October, November and December as people buy systems to play Fable 2 and Gears of War 2.

I expect this will bring the Xbox 360 sales above the PS3 but still below the Wii.  I'm not sure if dropping the Arcade to $199 will really help sell those units since they still do not have a hard drive in them.  If you are just looking for a standard gaming experience and don't plan on connection to Live then this system will fit the bill.  I expect most people would rather have the Pro model with it's 60GB hard drive.  This will allow you to download content from Xbox Live and even have room to install a game to your hard drive.  

I beleive that the price cut came later than than it should have.  Microsoft needs to make sure they have a distinct price advantage over the PS3 because most people simply do not buy more than one game console.  By having the PS3 only $50 more than a Pro the advantage had to go to the PS3 with it's BluRay drive.  Now that the Pro will be $100 cheaper than a PS3, you have that price advantage again.  Now we have to see if Sony can stomach another price cut to stay competitive on price.

Source:
xbox360fanboy - kmart-adscan-gives-us-more-360-price-cut-proof