They're not separating teams; they're creating separate teams.

Right, but this is Microsoft.

Budget is still a problem, but its less of a problem for companies as big as Microsoft.

Microsoft seems to be doing a good job at keeping a steady stream of great arcade titles while pushing console releases, for example. 

I trust Microsoft will not make the same mistake Nintendo made.

It doesn't matter how their team situation is being set up frantic, they will still have to divide money resources and focus between core and casual games. That's obvious to most, but not you apparantly.

How I read this: Microsoft views the Natal as a toy for dumb casual gamers, is going to release a couple poorly made casual games on it, and the device is gonna fail.

Apparently you dont realize that MS doesnt need to divide resources.  With new projects comes more revenue.  They will just invest more into development because they will be receiving more.  This isnt Sony.  MS has plenty of money to throw around and is profitable on their 360 division since 2007-2008.

Not gonna happen.  Microsoft has not even hit 40m with 360 yet; it would be foolish of them to release a new system this soon.  True that the first Xbox only lasted four years and sold under 25m, but they got pulverized with no chance of recovery by the PS2, and had to count their losses and focus on the future.  This scenario is vastly different; Microsoft and Sony both have many more systems to sell before they're satisfied, and Microsoft is adamant about beating PS3 this generation.  With the release of a new system this soon, the PS3 would certainly surpass 360 sales, no problem.

Plus, the 360 can (arguably) hold its own against PS3.  Sony is no where near releasing a new system and Microsoft knows it.  Neither system will be trumped in hardware capabilities unless Nintendo surprises everyone with a new system, and even then, Nintendo will most likely only match those system's capabilites, not surpass them, because that's all they'll have to do to sell millions upon millions of consoles AND make huge profit (which is Nintendo's bottom line).

IMO, releasing a new system as early as 2011 would work against Microsoft far more than benefiting them.

They have a limited supply of money that they are willing to spend just like every other company, and frankly, MS corporate won't want their entertainment division going hog wild with their spending since games isn't even a core focus of the company anyway, just a tangent my friend.

Also, if you want to talk about profits, fine.  But, just keep in mind that Sony's profits were about 1/2 of MS's with the most recent statements, and with every week we have sony slowly outpacing MS with hardware, and hardware base is what fuels the software sales first and foremost.  Software is how these companies get their profits, so Sony could possibly have equal profit to MS when the next round of financials comes out. 

It was my understanding M$ discontinued the original box because it couldn't reduce costs on Intel's processor, the dvd drive etc. In retrospect rushing their own design onto the market cost them as much as keeping the old one in place but hindsight is 20/20. There is no reason to expect the same next gen.

Roughly 30m PS2's sold at $130 or less after Sony's new system launched. The pattern could easily hold true for pricing and percentages for M$. Another 12 million or so 360 sold at a slight profit would add to sw sales. The issue becomes whether you believe Sony is trailing in hw this gen because they kept the PS2 alive. I think launch date and price were bigger issues.

We won't see any new hardware before fall 2012 imo. The possible exception would be Nintendo's HD offering. With their numbers, what's the rush? The 360 may still be selling in 2015 but I for one will need a serious hardware upgrade before then.

Um, Sony has yet to make any profit on their division that includes the PS3....

Also, in case you haven't heard, MS is very willing to spend money.  I know you think you know everything about MS expenses and budget when it comes to games, but they said themselves they are treating Natal as a new console launch which means they will have a huge launch budget and game budget set up for launch titles.  Stop trying to find some area of weakness.  MS has both areas covered.

Same here. Though I'm considering buying a 360 slim if it ever comes out...