Microsoft "should" be able to really make progress in the next generation if they've learned their lessons ...
In my opinion they should focus on reusing the basic architecture of the XBox 360 to keep R&D costs down, increase processing power to a fairly modest level, and focus on selling a single SKU system for $300 with minimal hardware losses. They need a break through in Japan and should have the most agressive line-up of high quality Japaneese focused games from the day the system is released.
Above all else though, Microsoft needs to define the XBox in a way that differentiates it from the Playstation line of consoles; it has to be something distinct and desireable to a wide group of gamers, and can not just be the clone of a popular system that is targeted towards the "Hard-Core" demographic.
