Realistically this toy would probably not be directed at their core demographic, but at a secondary demographic that has willingly purchased the Nintendo console. Further more to support this device all Microsoft would have to do is go with their strength. Which has always been strong third party support.
The concept has real potential if it were marketed properly. Which is too older adult, very young children, and new parents. Nobody wants to hand grandma or a three year old kid a controller. With this you do not. You just turn the machine on and let them do whatever the game tells them to do in front of the television. This could actually be a great boon for educational software. Just imagine a Dora The Explorer game where the kid just points at a box.
Would this be good for Microsoft absolutely, because due to the existing nature of their machine they can satisfy two demographics within one box. Which even Nintendo has not managed. Their console was too weak to appeal to the hardcore market. Microsoft could have a hardcore machine that can also be used for family gaming.
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