Of course MS can be number 1 some day. Why would two Japanese companies be able to do it, but an American couldn't?
Japan isn't a big gaming market anymore, because the world is getting bigger. Japan's share of console sales is already less than 15%, and it's a country with a shrinking population while we have huge new markets like China, Korea, India, Russia, Brazil and Mexico knocking on the door.
BTW, there is no law that says Western made electronics can never sell in Japan.
In the last decade we have seen a huge Sony and a tiny Sony, a tiny Nintendo and a huge Nintendo, and we've seen MS perform in the middle. What do we know about the video gaming market looking a decade into the future?
EDIT: RolStoppable wrote a good analysis about the Xbox vs X360 vs Xbox 3, and I agree that MS might be limited by the Xbox brand and what it stands for. But so does Sony with Playstation. And I can imagine MS abandon the Xbox name for something completely different much easier than I can see Sony abandon the PS brand.







