The same reason the XBox dropped from £299 to £159 in a very short period of time....
If MS are trying to make inroads into a new market, they simply have the funds to throw behind it.
I would be very interested to know WHO is subsidising such a low price!
Wonder if we'll see the SPV for £59.99 on Pay As You Go next?
Orange have a quota of 200,000 ordered from HTC... I thought that was actually quite a low number, bearing in mind they have a 1 year exclusive licence to the Canary design (then anyone can use it I guess!) O2 probably have a similar deal for the UK with the HTC Wallaby (XDA).