With the new 250GB 360 hard drive moving into the price territory once occupied by the 120GB drive, it should come as no surprise that the old model is getting a price cut. In fact, we're a little surprised it's not getting more of one. Microsoft just told us that the price on the 120GB HDD has been cut to $99.99, effective immediately. Microsoft tells us the drive is available at that price "while supplies last," so it sounds like they may not be on the market all that much longer.
In case you're bad at math, that's $0.83 per gigglebyte on the old model and $0.52 for the new. In case you're bad at Newegg searches, those are both still bad prices.
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A lot of things with the 360 are overpriced. Just the way things are.