Don't forget, MS _does_ have a lot of money to burn and they also carry a lot of weight in the industry; it's anyone's guess what the final specs we'll be seeing are, but I have no doubt that they will be able to throw their weight around enough to be able to drive the price down on the system. They will most likely be selling at a loss again as well. My feeling is that, given that the Xbox didn't live up to MS's expectations, they'll try their best to produce a system that blows everything else out of the water and is still fairly affordable. If they can make Sony's hardware truly look sub-par, they will be able to push that advantage in marketing. Since they're mainly competing against Sony, who don't really market games either (unlike Nintendo), this is a viable strategy.
I also feel, however, that MS's hype machine is not that great -- despite their 'giant' status, they have never really been able to pull off great marketing for consumer products..most of their money comes from selling stuff to businesses. I think the PS3 will be in a great position when it launches, mainly due to brand familiarity and (hopefully) backwards compatibility. I'm not sure how big of a factor performance will be in the next console war, as it certainly isn't a large factor now -- most people who aren't into gaming don't really know or care which console is technically the most powerful.
Back to specs, though... I really don't understand why the manufacturers aren't pushing more RAM into their systems.. 256 megs is a decent amount, but with the price of RAM these days, it seems feasible to put 512 or more in, which would definitely be a big boost to next-gen games. It seems like a lot of console games these days are being held back by small levels, and those that have larger environments tend to suffer from repetitive texture syndrome (Halo is a good example of this).