In my opinion, MS's biggest mistake began in 2010, after the Kinect launched. They became too complacent with the 360 and left a sour taste on the 360 userbase. That sour taste became bitter when they announced the X1. Like Sony at the beginning of the PS3 lifecycle, MS thought that they were too big to fail and it backfired big time.
MS has shot themselves in the foot more severely than Sony did at the beginning of the PS3 era. While MS won't lose as much money on the X1 as Sony did with the PS3, MS lost a lot of mindshare among the gaming community. Their bad reputation continues to hinder them to this day and this is something that cannot be easily reversed.







