Nintendo really doesn't have much of anything to fear from a potential X-mote. Because it's not the Wii Remote that makes the Wii so appealing. People often attribute the experience to the control method, but that's not quite correct. The controller is just a means of conveying a series of experiences. And it's the experiences that keep people coming (and coming back). Meaning that, even if MS did make a Wii Remote knock-off, it would be meaningless without unique and customer-valued experiences to back it up.
Microsoft has a very conventional game development mentality. They don't ask "how can we surprise our players?" the way Nintendo does. They ask "how can we please our customers?" the way almost everybody in the industry save Nintendo does. The key to unprecedented success is not satisfying the customers' wants, but rather, to introduce new wants which are not shackled by previous ones (that is to say, to surprise the customers). This is part of why Touch Generations games are so successful, incidentally...
The short of it is, Microsoft cannot compete with Nintendo on Nintendo's own grounds because they're approaching the problem from the wrong direction. They would have to completely shift their development paradigm, which is not as easy as you might assume it to be.
For more information on why rich unique experiences (and not simply pale immitations) are key to success, read "Birdmen and the Casual Fallacy" by Sean Maelstrom. http://malstrom.50webs.com/birdman.html
Sky Render - Sanity is for the weak.
