While the PS3 requires the HD to function - which is not a big deal SINCE every PS3 has a HD and every developer knows theres an HD to work with. The OS itself is still in ROM.
When doing the HD upgrade on a PS3. Once removed the HD cover, removed original 2.5" drive, then inserts whatever new 2.5" drive the owner buys from anywhere. Put the cover back on, turn on the PS3 and it'll detect a blank HD. It'll format and prep the drive for use and then require to DL whatever updates it needs. That simple.
So... a person who buys a $400 PS3 with 80GB HD, can go to newegg and drop $100 for a 500GB HD and drop it in. An Xbox Arcade user is suffering with a sub-standard Xbox360 and will spend about:
$100 to buy the "upgrade" 60GB drive,
$60 for the older 20GB drive
$140 for the 120GB drive. Ouch!
Any research into how many "Arcade" owners quickly (and how fast) buy the HD Add-on? Especially once they run into people saying "ah man, you fool! You need to buy the HD!"
256 or 512mb (whoop-dedooo!) it costs about 25cents and amounts to little for the customer. The $200 Arcade (Used to be $280 - remember that folks) is to get the sale. Without it, MS sales numbers would easily be lower. BTW, any sales stats of what versions are sold?