While Microsoft claim that their new price levels (effective as of tomorrow) has nothing whatsoever to do with the introduction of PS3 slim at 299 dollars / 299 euro on September 1, the timing really could not be more obvious.
Xbox 360 Elite drops to $299 in the US (£199 in the UK) with the Arcade model priced at $199 (£159 - a slight increase). The Pro model will be phased out ($249). The Elite bundle will no longer include a HDMI cable, but it does include a 120 GB harddrive, the same size that is included with PS3 slim.
With its new price level the Xbox 360 Elite will compete directly with PS3 Slim. But it is likely that Microsoft have one or two bundles in mind for the Arcade SKU this holiday season.