To me their number one mistake by far is the lack of 1st party support. While they netted a few good 3rd party exclusives the 3rd party exclusive on the PS3 are a lot more interesting, and the PS3's 1st party support destroys the 360's. I haven't used the 360 since getting a PS3, and at this point it's not even hooked up because anything I'd want for it is on PS3 also. They need to create incentive for people to be interested in their next generation of hardware, and that's not going to be easy if they rely on 3rd parties to carry them.
Even if all 3 Gears games are exclusive, what happens when Epic begins building GoW4 for the next gen? Do they stay exclusive when Sony is gaining ground on every advantage that the 360 had? Probably not. But if MS had more than Halo, Fable, and whatever Rare wants to crap out to bring to the table it wouldn't even matter.
Without a real draw to the system other than momentum (which is what they have relied on for the last few years), there's no real reason to buy their next piece of hardware. And since their current lack of 1st party support means several genres are under represented on their system, that draw just isn't there. Once they start providing IPs that are theirs and theirs alone that appeal to a broader audience they can call themselves true contenders next gen, but right now they survive on having more active online players (that pay to play) and the fact that they were first out of the gate. Some people may buy it for the exclusives they have now, but with so many being 3rd party they really do only have them right now.
You do not have the right to never be offended.
