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A good theory you have there - a pity it's pretty old, though it's probably correct.

Which leads us to the question: what should be considerd success for MS in the console market?

Sony should release the next PlayStation with a very open operating system - a Linux distribution - that has been over-simplified so it's easy enough for dumb casuals to understand. That way it act as both a console and a PC, you see, it would get software support etc. Of course processor architecture could be a problem... But it would probably be one of the smaller problems (sort of).