Pachter estimates that a 15 percent Xbox 360 price cut would increase hardware demand by 15-20 percent, although he admits that monthly sales are highly variable and tough to pin down.

"I think Microsoft would be happy to keep demand at 50,000-60,000 per week as long as they can. Recent demand is slightly below that level," he said.

Divnich expects a larger hardware boost of 20 to 30 percent in the short term, but says the real mass market sweet spot is the $199-$249 range.

Sebastian said that more than hardware price cuts, compelling software is key for sustained hardware sales.

Bhatia added, "It’s hard to quantify how much of a boost a price cut will provide. But I would say if the price is not dropped, Microsoft may risk losing share."

What about the Wii?

There's much talk revolving around the battle between the high-def behemoths Xbox 360 and PS3. But the Wii has been selling more units than both of its rivals combined for the past few months in the U.S.

Could an Xbox 360 price drop possibly affect Wii sales momentum and market share?

For the most part, analysts polled answered with a resounding "no."

Hickey thinks that with improved supply, Wii sales momentum could build even further. "We do not see any waterfall competitive pricing pressure on the Wii console..." he said. "We expect that additional supply over the holiday period will meet demand; a market equation that has been out of balance since the console’s release."

Pachter and Bhathia both agreed that an Xbox 360 price drop will have "no impact" on Wii sales this year, while Sebastian said the Wii's unique interface offers a decidedly different experience from rival consoles, therefore making it only an indirect competitor with the 360.

Divnich doesn't say that Xbox 360 is going to eat into Wii's growing market share, but he states that as Microsoft approaches a more mass market price, the company will put a larger focus on mass market software, and begin to look to Wii's audience.

"...We are going to see a lot of changes in Microsoft's strategies as they attempt to target the mainstream market," he said. "It is safe to say at this point that they have done all that they can with trying to capture the bulk of the hardcore gaming market.

"Don’t be surprised if at E3 Microsoft announces several new online features, exclusive games, and/or new features that will be targeted to the mainstream and casual gamer."

He continues, "Microsoft knows that as we get to that $249 price point, a system becomes more appealing to the masses and they will be sure to have the right games and content to appeal to that market. Isn’t Rock Band 2 hitting the 360 first?"