Well the MS/XBSX solution is tiny. Really tiny. I don't see why it couldn't be made the size of a typical SSD 2280 stick. If they don't want it sticking out of the console too much, just make the slot deeper. It would still easily fit in your pocket, and wouldn't get lost as easily. The other option would be to make a proprietary 2280 type stick, that's still internal and as cheap as possible, without the external features. Which still wouldn't be "cheap".
Back then you typically had little option to add third party devices for certain aspects of the console, so you had to buy their product. As long as third party external devices can be plugged into the rear USB 3.? port, that's going to be the go to option for most, even if they split the price difference and get an external SSD. I have a hard time believing that MS won't subsidize those cards to some degree because otherwise they probably won't sell that many. $500 for XBSX and even just $79 for a 1TB SSD expansion card seems nuts, let alone higher yet.
How much advancement will be made using existing hardware though other than when a potential upgrade comes along? Not much was done with storage this gen, even with SSD's being available, though they did help speed things up a little bit. Will MS bother since PS nor MS did last gen? Faster wasn't really a great point on my part now that I think more about it, for either company, other than that PS5 needs a min speed third party NVMe. As for cheaper and larger storage, they both will be able to benefit from that over time, I just see PS5 having the advantage as nothing will be proprietary and won't have a SNY 'tax' on it.
Accessories are made to make money not to sell the most so it doesn't make sense for MS to subside it.
duduspace11 "Well, since we are estimating costs, Pokemon Red/Blue did cost Nintendo about $50m to make back in 1996"
Mr Puggsly: "Hehe, I said good profit. You said big profit. Frankly, not losing money is what I meant by good. Don't get hung up on semantics"