It's hard to predict what would happen if MS went with the cheap low tech Nintendo style option, but I don't think that's going to happen.
My prediction is that Sony wins this next generation handily. With the current generation, the PS3 came out a year later, at a significantly higher cost, but was still comparable in hardware specs. It was also much harder to develop for. Despite this, on average it's been outselling the 360 slightly and has nearly caught up to the 360.
In the upcoming generation, they won't have an expensive new optical format to jack up the price, and they're not letting MS get a full year's headstart on them. The prices should be close, especially since the release seems to time pretty well for the yen collapsing back to more traditional levels. And if anything, Sony may beat MS to the market. They've also built it from the ground up to be much easier to program for.
Any final analysis will depend on what MS has to show off, but every dynamic shift from the last generation I can see looks to favor Sony.