Well with USB stick drives being supported soon, further increases the idea of 360 slim-down. Here's my take on it.
In the 4 1/2 years of the 360's life it has gone through two significant revisions.
The original Xenon had a CPU/GPU of 90nm/90nm and a 203W PSU. Then came Zephyr; same as Xenon except with an HDMI port. Then came the Falcon w/ a CPU/GPU of 65nm/90nm and a 175W PSU. The latest revision; Jasper (released early September 2008) has a CPU/GPU of 65nm/65nm and a 150W PSU: Not too shabby, but...
It's 2010, technology has advanced; 45nm CPU's are now the norm (PS3 slim has a CPU/GPU of 45nm/65nm). 32nm is even starting to emerge (Core i3, Dual Core i5). Another 360 revision is imminent.
The 360 uses an ATI derived GPU. ATI's next family of GPU's, "Northen Islands" will be 32nm, or possibly 28nm. ATI's latest family, "Evergreen" (released 6 months ago) run very cool and efficiently (using 40nm). It may be such that the new CPU/GPU combo will incorporate some variation of this new tech further reducing or even eliminating the RROD completely. Of course performance will remain the same.
Personally, I don't care if it comes in a smaller package, but M$ is pushing Natal as the next big thing. And seeing how well PS3 Slim sales did, marketing probably sees a new sleeker-looking system as a good way to put an even bigger spotlight on Natal; helping drive sales of both it and the 360 in general.
Lastly (and quite obviously) a 360 "slim" won't cost more than current models. If anything, it'll get a price-cut, again, to help drive sales.