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As far as third party titles go Bill only gets some royalties but they are mostly paying off the subsidisation of the hardware costs. MS heavily subsidises the cost of the consoles as will Sony with the PS3. Its a bit like mobile phones how the network subsidises the cost and makes it up on call charges.
Games are far more expensive to produce these days so prices will keep going up.
I always buy online: Gameplay.com, Play.com and Amazon etc. I never buy in the shops anymore, if you buy from gameplay using first class post you get the games the day before they are released in the shops so you save money and get them sooner (unless you are friends with your local game shop owner)!