Let's analyze the other consoles: the PS3 will be $500/600. Completely out of the league of anything Nintendo, so essentially, they're a non-factor. The X360 is currently $300/400. Many, including myself, expect a price drop by the holidays. Some are saying as much as $100, but I think it'll be $50, thus making it $250/350. Aha, the magical $250 price point.
The battle for holiday dollars will be between the X360 and the Wii. For the consumer who has $250 to spend they have the choice of a stripped down X360 or a fully loaded Wii? Who would want a stripped down X360? The casual gamer. The casual gamer, when given the choice between a full functioning Wii and a stripped down, wired controller, no HDD X360 will choose the Wii.
This does, of course, assume that the Wii (whether at $200 or $250) will be fully loaded. By that, I mean two controllers, a memory unit of some sort, and a game. My guess is that the package will include one Wii-mote, one Nunchuck controller (connects to the Wii-mote), the Nintendo Sports game (tennis, golf, baseball), and a memory card. If we're lucky, we may get the regular Wii controller with it, too.
Another reason why I feel that the Wii will launch at $250 is that Nintendo is too smart to miss out on the uber-hype of their console. Many gamers will gladly pay $250 for the Wii and feel like it's a bargain.
Finally, and I think the most potent argument for the $250 Wii is that if Nintendo prices it at $200, it leaves no room for a price cut for at least a year. I think that Nintendo can launch at $250, sell out several production cycles at that price point, and then come E3 2007, announce a price cut to $199. Even if Microsoft is aggressive with their cuts, they won't go below $199 with their core system ($299 for the full system) meaning they can't undercut the Wii.