No, theres no way that X360 developers are feeling intimidated, outside of getting rushed by publishers to create a game that's good, and comes out at the right time.
If MS made, or bought a proprietary game engine (ie, bought UE3 exclusively, or something), it'd be a very very good thing, as it'd cut MILLIONS off the cost of big-budget games, and hundreds of thousands of dollars off smaller games. And like others said, it wouldn't be forced.
As I stated in a huge post "biggest blunder of next-gen", the most important thing is very, very good SDK toolkits, and awesome developer environments. This single handedly won Sony so much marketshare in 1995-1996, because the PS1's SDK was written in an easy-to-understand SDK written in C, rather than clunky old Assembler code. It allowed newbie devs to write great software on the PS1, stealing alot of the "uber power" of the far superior Sega Saturn and Nintendo 64.
So MS developing more, and better SDKs, development engines, and a better developer environment is a very, very good thing.
Sales wise, there should be no intimidation from MS - consumers love buying X360 software, so this is why 3rd party sales are so great.
Back from the dead, I'm afraid.
