They should have a smaller gap between models, say $79. This price plan really encourages the Arcade, which of course discourages the other revenues streams like XBL games and movie rentals.
I hear the 120GB HD is now $149, making it a good pairing with the Arcade, which makes the Elite kind of a silly buy unless they add a game or two.
They also need to either start including Wi-fi or slash the price of the add-on, even with the price drops the real cost of ownership can be much higher than the base unit price.
Maybe Sony can respond with a $50 drop before X-mas.