Why Xbox 360 is losing appeal to new customers.

[Reasonable]

I don't think it's losing appeal so much as completing it's natural sales curve. I think, perhaps particularly in the US where 360 has done so well, it's tempting to apply unrealistic expectations on the 360.

MS started this generation in a fairly weak position. They had a core built around Halo and online gameplay, particularly in US, but it was small compared to the install base of PS2 and even the Gamecube.

Outside US Xbox had weak pickup with the exception of UK and MS were absolutely nowhere in Japan.

The 360 has performed better than I would have expected - perhaps even better than MS expected.

Yes, it cost them a huge amount of money, and yes, this gen 360 is still going to finish a fair way behind the upper limit possible for consoles, as defined by PS1/PS2 and so far this gen the Wii. But if you look at the growth it is solid and particularly in US the brand seems pretty secure. In Others its in a not bad place, and even in Japan a small victory of sorts (over 1M) has been gained.

I think the issue is that, unless Natal really does deliver something truly huge in growth (and not wanting to be negative but I don't think it will), the 360 is going to start winding down now, no matter what games launch on it, and by comparison the PS3 is still going to grow (because with a lifecycle curve starting early also means you start to wind down earlier too) and the Wii is of course way past what the 360 has any reasonable chance of achieving.

Anyone being unrealistic and expecting 360 to keep growing YOY is being unrealistic. It has to peak, unless MS pull of a miracle with Natal, and it has to have a decline. It launched ahead of the PS3 and the Wii, so it will start to decline earlier. The Wii has always outperformed it and the PS3 has always tracked it time adjusted and has a better global brand, so the results have to be seen in that light.

So 360 owners should be happy. The console was a success in terms of where it started, Live remains a very good service (albeit one with a narrower gap over PSN than previously) and the console has seen and will continue to see good games.