Here's my thoughts on this subject, the X-Box just isn't cool enough for the rest of the world.
The reason for the false sense of security M$ had is because of the US based success, which I think is largely because of American's preference to buy American goods over other countries. They don't have this benefit in the rest of the world and it's been a huge flop.
This price cut, coming only a few weeks after it's release, sends out all the wrong signals to me.
Fear maybe, my guess is M$'s money men just plain fucked up, the over estimated on the demand for the X-Box because of the inflated, patriotic American sales.
The X-Box might have been a success if it was released by another company ie Sony/Nintendo/Sega, but M$ don't have a clue, that much is clear from news of this price cut so early after it's release.
BTW I'm in no way implying that American's prefering American goods is wrong because it isn't, OK