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It makes sense for MS to go first to Nintendo, Nintendo is basically right across the street in Redmond, Washington, a partnership would've been very convenient for MS.

Nintendo should have accepted the deal. Who cares if you have to run Windows OS or whatever. It makes no difference when the game is being played, and MS could've handled the online stuff, again that's something that wouldn't hurt Nintendo.

Instead by making enemies out of both Sony and MS, Nintendo effectively locked themselves out of their own house.