Take a look at the sales spikes for the Xbox and PS2 when they hit the $199 market and then the $149 market and then you'll have your answer. Don't expect me to do your homework for you.
There will always be a segment of the population that see "$199" and think it's a deal, but most people who spend $200 will do five minutes of research and find the other model(s) a better value, despite the price.
All this talk is very reminiscent of the core when it hit $279 and included the memory card.
You act as though this is the first generation that video game consoles have been on the market. I must have missed the talk that the $279 price point would spur Arcade sales because it was clear that was only a stepping stone. In fact, while a certain segment of fanboys have continually bemoaned the existence of the core/Arcade, others of us.. (most notably those on these forums), realized that the base model was meant to win the race to $199 and then to $149 which is where the majority of consoles have gotten their sales in the past.
There is a significant difference both practically and psychologically in $199 and $279 or $249. Value is meaningless, unless your Sony who likes to present bundles as 'price drops'.
If the net cost to the consumer doesn't drop, it isn't a price drop. Adding value is a way for manufacturers to maintain their price structure, but it doesn't provide much to any consumer who wasn't already looking to make the purchase.
The $199 Arcade will provide not only a superior value to the $199 PS2 (taking into account inflation) but also a superior value due to the inclusion of a memory card and number of included family-friend easily-accessible arcade games.
Your stated position would have us believe that there aren't people who want to play GTA IV but haven't done so yet because of the cost of entry. Or, that the significant majority of those people would require a HDD if they wanted to play online. The first isn't true and the second is questionable since GTA: SA had no online mode. The same is true for Gears, and a number of other games, even including Halo3 which (while noted for its great online play) is also noted for its rich campaign mode and once again should be noted that gained such a large fan base on the Xbox that had no online component at all.
I can tell you there are people who are very interested in playing GTA IV, Bioshock, Halo, etc.. that aren't interested in Live! or online and haven't been able to play because the cost of entry is simply too great. These games are going to continue to sell for quite some time, and will probably sell more copies from now until the next of the generation than they've sold in their lifetime up to this point. Those sales are going to come from people who couldn't afford to play them on $299 consoles.