Currently Online 
Really, though, why would the masses buy an XO? A lot of other devices do very similar things for less money, some of which many people already own. How much of what the XO does can't be done on a laptop, smart phone, tablet PC, cable-box/DVR, or even the television itself? In many cases, it's just adding another (expensive) layer which really isn't necessary. Just another thing to turn and interact with before you can watch television.
I don't think it's going to take over the living room. People not interested in gaming aren't going to pay that much money for something that isn't really needed. Gamers who watch a lot of television will be interest, perhaps, and it's a good hook that a kid can use to convince a parent that the XO is a good family device, but I disagree with the idea what it's going to go viral with non-gamers.
Microsoft is also going to struggle to make these offerings apply in many countries outside North America or the UK. In much of the world, the XO won't have much going for it besides being a gaming machine.
If Microsoft is going to "win", then they'll need to have the more popular exclusive games. That will be worth more than all the media box stuff, in my opinion. Most of the people buying gaming consoles will be buying them to play games on as their primary reason. I do not see that changing.
