Well this article is pretty much a sum up of this thread but some part are imho off. For example the writter acknowledge that Ms may be more conservative in regard to hardware cost but he think about:
a 128GB SSD which would cost 50$ at launch
a gpu as big as the xenos
2 controlers both pretty advanced (batteries included, better radio transmission, advanced motion sensing, etc.)
Edram => more silicon + a more expansive motherboard
I think he considered power consumption and thermal disspation to lightly and he is not alone, we've been overlooking (including me) comments of more knowledgeable members in this regard.
For example the 40nm process from TSMC is rumored to be pretty bad, it has been an eye opner for me. Basically ATI and Nvidia will be limitated not by die sizes this time around but by power consumption. High end GPU have already pretty much hit the roof with ~300watt they have very little legs in this regard, new TMSC process may bring very little in this regard. We may not see a jump in the transistor budget (or frequency) for the generation of gpu made on this process, no neat jump in power if anything tinier/cheaper chips.
How will be 32nm? could be good or bad... But if a console were to launch this year @40nm its gpu for example would have to be significantly less powerfull than a HD48xx which burn 300watts.
That's clearly a point in favor to larrabee no matter its efficiency in graphic department at least we know that Intel 45nm and likely 32nm process are/will be good. Shortly Intel may pack in significantly more transistors than its competitors.
The foundry company (if it actually turn to exist) has at least AMD 45nm process looks pretty good,may be they will need to keep some foundry busy?
Back to larrabee I think that the news about the bad TMSC 40nm process is clearly a good sent for Intel. By fall 2009 they might very well be able to launch a larrabee that significantly bigger than its competitor that extra raw power could very well be a pain in the ass for both ATI and Nvidia (even if software/side side is likely to suck), at least gpgpu is more and more of a given for Intel. With 32nm likely to be here by 2010... both ATI and Nvidia have some work on the table I guess.