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It should be a next gen system, whether it is or isn't I'm not entirely sure but for those confused as to how it could be next gen: 

1. Microsoft releases fully BC "Next Gen" Machine with mandatory X1 compatibility for first 1.5 years. Remember how pS4/X1 shared 90% of their library with PS3 and Xbox 360 throughout 2014? This would just be an extension of that and include 1st party titles, a very soft hardware transition. But scorpio exclusive features will be availble from day 1 (Halo 6 split screen, unique OS features, VR). High Entry price $499 at launch but huge performance and hardware advantages over competitors and X1.

2. Microsoft lifts the ban of Scorpio Exclusive games at beginning of 2019 and releases their first Exclusives that fall including Halo 7. By now (holiday 2019) the system is $349 and they're officially pushing it as a next generation system (with a slimmer version?) ahead of or alongside sony's PS5 depending on whether thats a 2019/2020 machine. 

3. Yes PS5 will be hugely more powerful than Scorpio, just as the Xbox and Gamecube were notably more powerful than the PS2, but Scorpio's has a price advantaged and an already established userbase. On top of that its unlikely the PS5 will outperform the Scorpio by much more than a factor 2. Something which isn't huge where graphical differences are concerned in this day and age.

4. 4 years after the Scorpio releases & 1 or 2 years after the PS5 is out Microsofts issues their next hardware update which again will have a soft transition. Every Microsoft Hardware receives 6 years of support but the concepts of generations are blurred.