Xbox is necessary, but not solely because of competition. Competition isn't wholly positive either. What I think is more important is that the more choices there are the larger the market becomes. Xbox ends up improving but by generally being the worst of the two, at least with regard to the consumers. The OG Xbox was the most consumer friendly one, and every following gen it screwed over the consumer a bit more and its original install base. However, what it did well forced PS to adapt as well cause it went in targeting its marketshare.
Xbox has gotten away with a lot of crap, and that is what the competition notices as well.

No, a future where sony is dominate is a bleak future indeed... We need a future where all 3 are competitive, not where one distroys the other unless its handhelds

This is all my opinion, mind you, but I remember saying all the way back in 2000 that the Xbox would destroy gaming and now, I feel....pretty vindicated.

DLC,dude bros, online passes, games shipped in beta, studio closing shop left and right, nothing but shooting/killing games, decline of Japanese titles, online subscriptions....yeah, MS really did the industry great. I totally enjoy the gaming industry in 2014 so much more than 1999.

Totally.

OP must have missed the 80s and 90s. I'm really a Sony Fan, but Sony without competition is just terrible and in no way good for the customer. Sony truly shines when they are with the back to the wall. Then again, that is true for every company...

Competition is a good thing.

I am 32 going on 33. I remember the ps2 just fine, but that was all speculation and turned into an urban myth.

http://www.zdnet.com/uk-intelligence-dismisses-ps2-missile-fears-3002083302/

and you completely missed my point.

PS2 was not the most powerful of the generation but they have made the most powerful system since. Why? Competition of course. If it was just sony and ninty, I think sony would have took a different path.

after the PS2 Sony came with a 600 dollar console.. for the gamers...

I disagree. Even if they did end up getting out of the console business, someone else would just take their place which kind of pokes a hole in your two horse race argument.

Competition is always good for consumers, that's the reality of the situation.

Bold: How is this the Xbox's fault?

Even if one hardware company dominates, software makers will have to compete for sale or they'll still lose their jobs. That means the focus will be on the games and there won't be as much praise for just being an exclusive. As you said devs can focus on making a Nintendo or a Sony game with a few overlaps I'm sure but won't have to port to two just to reach the same install base one used to have (Sony during PS1 and 2). In short I don't agree with your reasoning but do agree with your end result.

Competiton is not wholly positive, it truly depends on the context.