If MS did both, they'd still end up way in third place.
XBL is used by a fraction of all Xbox 360 owners. I recall MS bragging that XBL was used by 6 million unique consoles, Xbox and Xbox 360 included, after the original Xbox sold ~24 million and the 360 sold ~8 million. XBL may be a selling point for many prospective owners, but not the majority of prospective owners.
A single SKU would decrease revenue and sales, which is exactly what MS is trying to avoid with the 3-SKU strategy. The way the strategy works now, most people want the premium and will pay $350 for it (US prices). However, if you're too cheap to get the premium or don't care about the hard drive and accessories, you can get the Wii-priced Arcade at $280. And if you feel like paying MS more money, you can get the Elite at $450, but it's a total rip off to get a $3 HDMI cable, black paint and extra hard drive space.
However, people think the elite offers some other intangible -- such as increased reliability -- which it does not, and the Elite tends to sell fairly well. This is very good for MS who makes at least $85 more profit on the Elite compared to the Premium.
With 3 SKUs, MS is trying to have its cake and eat it too. It was a sacrifice for the 360 as a platform, since the drive isn't standard, but MS was willing to cripple the platform in that way to get additional adoption.
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