For consumers I think it would have been best to wait one year doing more R&D to have rock solid hardware and have a built-in Blu-Ray drive (cross platform devs would have more space to work with, would be pushed to optimise for predictable constant streaming and disc scratching complaints would be non-existant). From a technology standpoint IMO no HD DVD, from a market standpoint a prolonged format war wouldn't have been beneficial.
Microsoft would still have an advantage with regard to legacy game engine porting the first one or two years. A 20 GB harddrive should have been minimal by default for devs to cache onto, Live should IMO have been free. If any company can easily afford this it would be Microsoft.
I don't think they would have done much worse in terms of sales. A Blu-Ray drive would be more expensive but RRoD is expensive as well.
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