There's no way it was a mistake -- look at the situation with Sony's PS3. They are specifically removing BC on their 40GB because their own PS2 is cannibalizing sales of PS3 software. And the situation was vastly different for them because the PS2 was an outrageous success. They were still making a lot of money off PS2 software because of its astonishing userbase. However, even the massive success that was the PS2 is starting to run out of steam. Sales of PS2 games are sliding off the charts but the people who used to buy them are not committing to adopting PS3s. So now their current system is in a hole and their old system is on the way out.
The original Xbox, on the other hand, was not making money. They were not selling enough software to make the system worth the risk that potential buyers might hesitate to move on to the 360. The result is that now the 360 is making money and it's making it by selling truck-tons of software. There is no one at MS looking at their bank sheet thinking, "Hmm... I wish we had kept that money sink around a little longer!".







