Before anyone says I am a fanboy or anything else i wanted to say something, I own a ps3 and a 360 and am happy with both, i believe they both have good points and bad and personal preference is the key.
Recently my xbox 360 had decided it hated me after 13 months and packed in.
Refused to get my console repaired, lets face it, who knows when it will go again!
Begged my partner to Order me a 360 arcade while i was at work so i could get it before the weekend :P and had it out the box and set up in 2 mins flat when it got here, the included games are pretty good considering, but buy more believe me!!! have my hard drive from my old premium but im not using it, the missus has just ordered a arcade for our son so im gonna let him have it, he plays so much more than me, shame i have to work :)!
All in all i would recommend the arcade, yes i know it doesnt have a headset, it doesnt have a hard drive and only a composite av lead, but at £160 can anyone really say your getting ripped off?
In my case the premium/elite would have been a waste, i already have a hdmi cable, I have a wireless headset and am not worried about downloading off xbox live so its the perfect console for me, even if you dont have those things for a change i agree with microsoft, just buy what you want, when you want it, when you can afford it or whatever.
Take the plunge, its worth it, and at this price you can enjoy with a no guilt, enjoy!!!