Yes, the 360 and Live are good products, but they both lose money, and despite your concerns about Sony’s next generation, the PS2 outsells the XBox! Repeat: outsells. I would wager that when the PS3 does come, the combined %s of PSOne (they still sell well), PS2, and PS3 will make Microsoft’s 4 billion dollar experiment to get to 18% of the market look silly and hugely costly.

As you point out, this is the beachhead for MS even if Windows and Office remain the only sources of profit. So why would it be a good thing to engage another loss leader that concedes none of the 5 different media strategies they’ve had over the last 5 years made any sense while at the same time raising competition and antitrust concerns by once again going to a vertical, tied solution after promising an open platform for their partners?

 As a matter of fact, the key to winning against the iPod is to have a platform where consumers can connect to each other and to musicians through the medium of music.  iTunes is still very much a connection between the consumer and the firm (Apple in this case).  Connect consumers together and you will have a movement.