I do not think things are as bad for MS as you think they are.
There is no way they would have reduced the prices of the 360 to the levels they are today.
To me Sony is in the worst position at the moment.
They must be thinking very hard now as to what they can do to help there sales over this xmas and beyond.
They have already said they will not have a price cut.
I dont think they are in any position to have one this year anyway.
Sony spent a fortune in R&D on the PS3 as i said earlier all the profits from the PS2 were used.
When you think how many PS2s have been sold thats a fortune.
Have a look at this.
http://www.gamesindustry.biz/articles/perry-sony-has-no-chance-of-making-money-on-the-ps3