You make a good point, and I could see that potentially worrying European gamers a triffle, but I do doubt that in US the average gamer would really worry that much. The only major negative I see from a US perspective is that the 360 might well lose jRPG support almost totally, closing down the potential gaming demographics it could appeal to.
I do think that the Slim, FFXIII and GT5 are going to sink 360 in Japan in terms of relegating it to a very distant first, and I suspect that unless MS is willing to shell out serious money for the privillage you're going to see less timed exclsuives for games like ToV on 360.
But I don't think MS can pull out - from a simple revenue/cost basis I could see it making sense. Funding new IPs, contracting for timed exclusives, etc. to scrape to 1M consoles really doesn't make sense - and I suspect if there was a P&L for Japan only for 360 it would be negative. But in the bigger picture they have to stay there and keep pitching away.
Right now 360 is strong in US, established in Europe and weak in Japan. If they pull out of Japan then I could see many European countries assuming the same might happen (as per your arguement) leaving the 360 really only entrenched in US by the generations end.
I guess MS will just have to look at Japan as a form of loss leader in their broader efforts globally.
Thats hilarious reasonable. Microsoft wouldn't leave Europe. If Microsoft poured half of what they poured into Japan into Europe financially, the Europeans would at least respond. The Japanese don't respond to outsider products if they have a home product that is either just as good or better. The outsider product has to be really, really good, or something they don't have.