I'm not sure who's going to win or lose next gen, but I do agree that it's likely that Microsoft will invest more in Kinect. It seems Microsoft is gravitating towards a "casual" type of console. After the launch of Kinect, Microsoft has been less focused on 1st party hardcore exclusives and more on motion controls to capture the casual market.
Will this strategy work? I'm not sure. As you said, software for Kinect hasn't been particularly amazing, aside from a few games. Unlike Nintendo, Microsoft doesn't have the manpower to release multiple blockbusters for for Kinect. And 3rd party support hasn't been particularly amazing for Kinect either. Looking at the recent sales of the Wii U & Kinect, the appeal of motion controls appears to be gone.
Considering motion controls may not be very attractive next generation, I agree that Microsoft should focus on something other than Kinect. This could be a combination of 1st party games, 3rd party exclusives, functionality, features, OS, etc. If they do focus on motion controls, they could fail at trying to capture a market that has moved on. And this could be a grave error if Sony launches a console with adequate games & price. We'll see.
I agree with the overall theme of your post. Microsoft could make an error trying to appeal to casuals via motion controls. They should focus on other things. I don't agree with your prediction that they will end up in 3rd place though. You could be right, but at the moment, any prediction could be right or wrong.
