360 price drop "imminent" - but unnecessary?

I haven't been able to read the entire article thanks to the firewall here at work, but the RSS summary of this NextGen article is certainly interesting.

Analysts have weighed in on the PlayStation 3 price cut today, with one saying that Microsoft will be cutting the price of all Xbox 360 models this week.

The main question should be pretty obvious to anyone following Microsoft's recent annoucements:

Can they afford this?

The company has earmarked $1bn for their new three-year "red ring of death" warranty program (which I think I'll have to make use of myself shortly); sure, they were expecting the machine to turn profit by the end of 2007, but any price cut enough to kill Sony's $100 PS3 drop is going to really throw a spanner in that works.

The other, and perhaps more relevant, question is whether Microsoft need to lower the price of their machine. It's still cheaper than the PS3, and despite known hardware faults (with an undisclosed failure rate) it's got a sizable library of very strong titles - and Halo 3 is landing in November.

Besides, Sony have more PS3 troubles than just the price - they're hemorrhaging exclusives all over the place; Devil May Cry is multi-format, there's rumours of MGS3 going the same way, and Microsoft also have Grand Theft Auto. Japanese companies like SquareEnix and Mistwalker are releasing Xbox 360 exclusives.

And now, it looks pretty much confirmed that Beautiful Katamari will only be released on the Beast of Redmond's console.