I think MS is actually doing fairly well. Here is what they need to do this year.
1. RROD: Fix the hardware quality issue. Anything over 2-3% is unacceptable. Make sure people know it is fixed, otherwise it will not help!
2. Hardware redesign: Cooler chips, smaller form factor, quieter drive, wifi.
3. Drop the number of models down to just two. No HD model/80GB model. Let users add/swap drives themselves.
4. Drop the prices to $170/$250 by Christmas. Pack in casual games for the cheaper, hardcore games (GTA4) for the expensive model.
5. More Internal development. Ramp up internal development (or buy a studio). 3rd party exclusives are becoming rare, so make your own. High quality exclusive franchises sell systems. Make your own Mario/Zelda quality franchises that appeal to more than the hardcore gamer.
