The whole point of a console coming at a higher price is to increase the power. If your suggesting that Microsoft would match the PS 3 hardware specs with a lower priced console, I say no way. More powerful specs costs money, they would be losing even more money then they are now.
A $399 PS 3 is a nightmare situation for MS in my opinion. Sony has the hype and momentum to justify a machine at this price to the public. Microsoft would have a hard time convining people to plunk down $399 for its console after the inital release. What does MS do? Stick with $299 and a lower speced machine? Go higher with a $349 or $399 and try to match the PS 3?
You seem to miss my point . Price is all that matters. Yes i think ms can match the sony specs at the same price point or under. You don't know what ms has up its sleeve in terms of cpu , gpu , ram , sound . We know sony is going to use a cell based chip . We know they are most likely going with rdram again in the form of this xdram. But the topic is sony. Sony does not want to loose alot of money on this console because unlike ms this is thier bread winner. So sonys buisness plan is to make no money on the system and mabye loose a little money. But they want to get it quickly to where the system is breaking even or making money. This is so they can drop the system price . Remember nintendo doesn't go for top of the line systems but rather like to stay in the running and have a cheap selling console . Ms likes to spend money and wants the best specs for the machine. So sony knows they have to fall in the middle. They can't afford to have the weakest system since they don't have a built in fan base that would buy the system regardless. They also can't afford to loose alot of money on the system at the start because they don't have huge pockets and other sections of the company that will make enough money to hide the fact or at least make it look like its not loosing as much money as it really is .
So basicly sony has to balance the system. So yea a 400$ ps3 might be hard for ms to fight. But if 150$ of that system cost is a blue ray drive then no it wont be. Because ms can throw in a ten dollar dvd drive and throw in faster chips with that 140 bucks . So you see it all comes down to cost.