I doubt there will be a 360 price drop this year. PS3 will be in very little supply this year, if it ships at all. 360 should easily sellout this winter. I expect the price drop to occur at E3 2K7.
I can see XBL being free using ads.
Other rumors I have read are:
At E3, M$ to unveil their own itunes like service for movie/music downloads
DirectTV blade
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