They'll be happy this gen I think, even if overall (i.e. total expenditure to date from the original Xbox) they haven't exactly raked in cash in mountains yet. This gen for MS is about moving from having a foothold to being a contender - which they've done okay on.
Next gen is the key, though.
If they still end up behind others will they quit? Assuming the division is profitable, assuming they remain dominant in US, particularly if they have a strong presence in the heart of US households, delivering content, etc. in addition to games, then no. That would not make sense. They'd settle for US and continue to chip away internationally - while taking some lumps for failing to make their goal of being dominant after three generations.
Looking at the global marketshare split I think MS would need to see a massive failure next gen, with the collapse of their US stronghold and the emergence of a true victor in the war to 'own the living room' to ever seriously consider whether to throw in the towel or not.
Try to be reasonable... its easier than you think...
