The lost-leader strategy can still work as long as the systems are on the market longer than before, which is what Sony and Microsoft are shooting for. I've said it a number of times, the 360 and PS3 are gonna be around for another 7-10 years. Sony has pretty much confirmed this all those times they've been claiming the PS3 is "futureproof." So if the 360 is around for a total of 8 years, and is selling at the same rate as the XBOX1, the 360 would sell 50 million units. Along with Live and all the other fees, microtransactions, and overpriced accessories, MS could conceivably make a profit this time around by the end of the 360's life.
My Top 5:
Shadow of the Colossus, Metal Gear Solid 3, Shenmue, Skies of Arcadia, Chrono Trigger
My 2 nex-gen systems: PS3 
and Wii 
Prediction Aug '08: We see the PSP2 released fall '09. Graphically, it's basically the same as the current system. UMD drive ditched and replaced by 4-8gb on board flash memory. Other upgrades: 2nd analog nub, touchscreen, blutooth, motion sensor. Design: Flip-style or slider. Size: Think Iphone. Cost: $199. Will be profitable on day 1.
