ACT1:
Once they were hailed as one of the top game studios, with IPs such as Age of Empire and Flight Simulator. Those were the PC days - "The Golden Age of Profitability and 'small bucks'", if you prefer that way. They made a mark both in profits and quality.

ACT2:
Fast forward to the Console Age. They released a sturdy Xbox with several high-selling games such as Halo, and was the 2nd best selling console of it's generation. But that came at a high price: Billions of dollars were lost, and if this were any other company, it would've gone to the crapper (ask SEGA).
But Microsoft being the juggernaut that it is, they shouldered those losses and kept moving on. Their intention with the original Xbox was to put one foot inside the console games market, which they most certainly did.

ACT2.1:
While they were battling in console grounds, little Valve came and proposed to the giant if they were interested in building a digital distribution service... Microsoft's only answer was "That's a million miles in the future...We can't help you" and slammed the door in front of Valve's face. Poor Valvie was gone empty handed, and left to make their own fate. Little did Microsoft know what a cosmic opportunity they've missed.

ACT3:
Xbox 360 launched. Sooner than the rest, made everything well enough except one thing: Reliability. Millions of flashing red lights were dreamt by executives, costumers frantically called support, and so on. Even Fox News made itself look like a credible source when it attacked Xbox 360's hardware.

Money is still being lost. Xbox 360 won't break even, and the Wii is a millions miles away (and in pure bliss). Xbox 360 is still second, but it may very well be last after all is said and done. However, Xbox Live became a force to be reckoned with, and could be the biggest advantage if Michael Pachter's right and we are truly entering an age of pure Digital Distribution.

ACT3.1:
Valve grew up, understood how the world is, and worked. Worked. Worked... Steam was born after a complicated birth that lasted long. Valve's child held tight the fate of much of the PC gaming's industry, and we all rejoiced. Now, Steam is the oasis, the alpha and omega of profits, ferraris and indie love. Publishers and Developers are flocking to it, and one specific company palmfaces itself.

Microsoft cut all ties with PC gamers, then decides to regain them?! GFWL was born, an unloved child by all gamers that have respect for themselves. A futile attempt at erasing mistakes of the past, with no good fortune so far.

ACT4:
How will Microsoft survive if the hardware becomes irrelevant?
How will Microsoft recapture the PC Games Market?
How will XBL/GFWL stop the Steam train?
Will Microsoft be profitable in it's third try in the console market?

Man, my Powerlifting captain is having fun playing L4D2 on the 360.

You could write one like this for Sony and Nintendo too... So whats your point?

Its not only ms who has problems.

Define "lose". They were never market leaders to begin with...

-did MS confirmed they lost Billions of dollars from RROD? or they did spend BILLIONS OF DOLLARS?

imo, xbox did great this gen of gaming.

Could you tell me where "money is still being lost"?

As for your answers:

• How will hardware become irrelevant? If in case it does (which if it happens, is decades away), Microsoft has Xbox Live which has been the biggest online success of any console. It could easily ensure that Microsoft can offer a service system in the event that consoles go by the wayside (again, I do not see that for decades)
• Why does Microsoft need to capture the PC gaming market, again? The market is far different today than it was 10 years ago when MS was in its prime. The market is going towards smaller, bite-sized games. I doubt Microsoft can really do a lot there. However, it can continue to be a strong value proposition for developers that want to build cross-platform games between the 360 and PC, which its been doing pretty well at.
• Why is XBL in competition with Steam? XBL offers a much different breadth of content than Steam does. Its not just a gaming platform, but VoD and other such offerings. Microsoft does not need to compete with Steam. They need to compete with PSN and Nintendo Connect.
• Given that MS has been profitable on the 360 for the past 2 years with pretty good profits, I fail to see why they could not manage to make a profitable 3rd console.

Poor shio =( The 360 people think they have it bad, I think shio is the only PC fan.

I think you have company though:
http://www.vgchartz.com/profiles/profile.php?tab=forum&id=58081

Give him a holla dog.

I think that MS's opportunities for the next gen have both lower risk and return.

Less risk b/c they won't be so studpid the next time and make a console that will melt during a halo game

Less return, because they won't have the advantage of a highly overpriced PS4 and will have to pay royalties to Sony for every Blu-ray based game, assuming of course that the 720 will be using blu-ray for its games.

So, the 720 should have a lot less upside and also get rid of the losses in profits sooner (no RROD w/ the 720) .

Microsoft more than doubled their console gaming market share gen-to-gen. I don't consider that a loss. Sony is the one that posted the big losses (thankfully they've been learning from their mistakes the past 7 or so months). The big winner coming out of all this is Nintendo.

Now on the PC gaming end, Microsoft likely lost share. But they've more than made up for that with big gains on the console end.