Well, here's more news for you Arcade lovers. As you've probably figured out all by yourself, the cheaper pricing is Microsoft trying to move old stock and Redmond has confirmed that when fall rolls around, it will offer a $199 version of the new Xbox 360.
Kotaku cites an internal Q&A document from Microsoft's marketing department that definitively states:
Microsoft didn't mention any specifics about the upcoming $199 Xbox but it's likely it'll lack the 250GB HDD present in the $299 model (similar to the current Arcade). No word on whether or not the WiFi will carry over. Fingers optimistically crossed for that one.
The document also confirmed that Kinect will be available bundled with the new Xbox 360 as well as the upcoming $199 model.