Rare was always a bad fit for MS.
They should've insisted to stick it out with Nintendo, in the long term they would've done well with Banjo-Kazooie, Conker, Perfect Dark, Killer Instinct, Kameo, DKC revival, etc. on the Wii/Wii U and DS/3DS.
While I don't now if they'd ever be the same powerhouse of the 90s, I think they'd be profitable and fairly prosperous today under Nintendo because no one's really making games like Perfect Dark and Conker serve a market that's not well supported on Nintendo platforms (so they'd probably do well), while Banjo/DK/Kameo compliment what Nintendo already has well.
I also think Nintendo probably could've marketed and sold something like Viva Pinata better than MS.







