Microsoft does want product integration even though the Xbox brand and Windows brand are functionally independent of one another. It just makes better business sense to have customers stay within their overall ecosystem of apps and hardware (see Apple).
The decision to integrate Xbox compatibility with Windows seems like a pretty obvious choice even though dedicated PC gamers would prefer to upgrade hardware components before diverting money that would go into a console environment. It might pick up some Xbox sales, but nothing remotely close to the optimistic notion that "get your free Windows 10 upgrade, buy an Xbox One to go with it" would happen on a significant level.
It may be a forgone conclusion to say that Microsoft would like to have the option on the table to make Xbox part of a software package in the future, with a dedicated box that can only be completely revamped every 5+ years being optional, and if no longer profitable, obsolete. The brand name would still exist, as would the Xbox Live service, which may even be a bigger piece of the revenue contributing to profits than console sales. Peripheral sales (like the ever profitable controllers) would remain; they generate larger margins than do console boxes.
It ultimately boils down to what will be the most profitable business model.
Sony is already experimenting with streaming services, dongle boxes that replace consoles (tied to subscription services), business deals with Samsung that will build that dongle box compatibility (eliminating the need for the extra hardware) into smart TV sets, etc. which could set up a future where the console becomes an optional purchase.
PS4 titles are tied to PS4 hardware currently, but it's not to say that the same streaming service that works with PS3 games can't be provided for PS4 games. For now, selling PS4 consoles and controllers and accessories along with the visibility of having a (successful) hardware product line still makes a lot of business sense, particularly now that the razor blade model of losing money on consoles but making up lost revenue on licensing fees for 3rd party software has more or less been abandoned (PS4 and XBO were designed with modest specs in the interest of not losing $200 on every first generation hardware unit sold).
But as long as MS wants consumers to keep buying their consoles, they will have to make some of the sweetest plums (like Gears of War and Halo) exclusive to their console environment, otherwise the only reason for buying a console will be similar to the reason for buying a Steambox; it's cheaper and easier than building a gaming PC.
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