1. They probably thought that since they have the edge in software, they are a software company after all, that videogames would be an ideal new venture to get into. This part, they got right, no doubt about it. Their biggest strength is the online component of gaming which Sony and Nintendont really lag far behind in.
2. They underestimated the portion that hardware would have in this, which gave us the RROD
3. They also assume that they can coast by on their early success, that Sony won't get its rear in gear like it has and will continue to do, and that they can do well much less "win" by only caring about NA
4. That they can get by with a "bulk force" strategy of spending heavily on things like marketing I mean I see them advertise more often than Sony or Nintendo combined, but again, while their motivation is strong they haven't really thought well or carefully enough about this whole thing, see 2 &3.
5. According to the few articles written on MS's next console, the biggest gimmick, and all the consoles are gimmiky, will be HD movie downloads. dumb dumb retaaahded. Why will this save them? Because it's going to be unique? Well, mabey for a short while, but there is no reason why Sony, couldn't do this themselves. Sony will be able to offer these downloads cheaper as well, since they are a movie company as well, and have better relations with the movie people, so they will probably be able to do it better and have more HD movies to sell as well as the price factor.
