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I could see this happening. If they were to make a fully BC, competitively priced new console with an updated GPU/processor that surpasses the PS3's graphical capabilities, and introduce it in the middle of the PS3's lifecycle, they could give Sony a real run for their money.

 

The only problem would be that they'd have to build a whole new userbase, rendering the original 360 base completely obsolete. I retract my first statement, this would be a horrible idea. But the idea of getting a redesigned MS console that doesn't go all Red Ringy on us is just too enticing to completely disregard!