Actually, the talk* (disturbingly) now is that Microsoft might be going with more of an Apple-y, iPod approach, i.e., releasing an upgraded version for the same price. So, yes, I think it's safe to say that by the end of 2007, the Premium as we know it will be completely phased out, with the Core** at, oh, $199.99, and the new Premium as the HDMI-enabled, 120 GB HDD-having version for $399.99. This gives them the best of both worlds.
I think Sony has no choice but to price slash sooner than later, but I wouldn't be surprised if Nintendo doesn't follow this same approach with the Wii, perhaps eventually cutting its price to $199.99. But they can't be in any hurry after this past holiday season's results.
*--As heard on this week's "1up Yours", or was it the latest "The Hot Spot"?
**--Would they keep the 20GB HDD as a separate item for the Core crowd looking to have value-minded memory? Not likely, as the second-hand market might become flooded with them over time, and they'll want people to have something that is practical for storing HD movies and the like. A 20 GB drive, as we're seeing now, deters that market.