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I really can't wait to get a 360. Hopefully this isn't just a deal on wal-mart's part but it is everywhere too.
It won't be long before the head of Microsoft's gaming division is on one of those car dealership commericals where the guy is yelling, "WE'RE SELLING 360'S SO CHEAP, WE'RE PRACTICALLY GIVING THESE THINGS AWAY !!!"
Manufacturing cost is only one factor - generally, the better the games and online assets sell, the more MS will be willing to take a loss on the console hardware itself - because it will be increasingly made up for by software sales.
At $199 I think that the Arcade is going to be flying off store shelves for the next six months.