Microsoft's new console be cheap & effective designing to counter Nintendo?

[Reasonable]

I doubt it. I think MS is locked in , via its big hitters like Halo and Gears, to provide a decent jump each console (much like a PC level big jump) so each franchise (and new IP too) can seek to deliver bigger/better graphics, particle effects, online experience, etc.

I suspect many 360 fans would be disappointmed if the next Xbox was a 360.25 and only allowed for modest jumps in game graphics/content.

But I could be wrong of course.