The reason why I say this is because it appears that both will be better able to meet their goals working together than they will working seperately. Microsoft isn't averse to working with other competitors, even in the same industry so cue Apple if you want and Microsoft perfectly matches Nintendo in terms of shoring up their weaknesses in networking, development environment and they would both benefit from having similar hardware and that hardware can be produced cheaper with better economies of scale for both parties.

The reason why I say this is because it appears that both will be better able to meet their goals working together than they will working seperately. Microsoft isn't averse to working with other competitors, even in the same industry so cue Apple if you want and Microsoft perfectly matches Nintendo in terms of shoring up their weaknesses in networking, development environment and they would both benefit from having similar hardware and that hardware can be produced cheaper with better economies of scale for both parties.

Advantages Nintendo:

1. Microsoft already has the kind of network Nintendo would like to have and they even have technologies like real time bleeping of voice communication which aren't available anywhere else. If Nintendo were to build a network like Live for themselves it would cost them over a billion dollars whereas Microsoft already has one ready to go.
2. Nintendo has struggled somewhat with development support and Microsoft has already got the bridges built between console/PC which they would want to leverage as their interface shares many commonalities with the mouse. Microsoft already has some of the best development tools available which would help Nintendo create even better games even more quickly than before whilst ensuring supurb 3rd party support.
3. They will not have to build their own next generation hardware, they can simply base it upon pre-existing technology which would speed time to market for them and allow them to focus on unique differentiating technologies rather than the box which is pretty irrelevant at this point once they have the form factor/power requirements inside the range they want.

Advantages Microsoft:

1. Their Live network benefits from every additional user they can get. Its a network effect. So long as people are subscrbing to Live they are winning. The more subscribers they have the easier it is to gain additional subscribers, momentum is everything with networks; see Facebook vs Myspace for instance.
2. They can leverage the cost of their hardware development over a wider and larger base of hardware which gives them leverage to work out even better deals with technology companies and this can lower the per unit cost quite considerably.
3. It gives them an exit strategy in the console space if they want to take it. If they can carry on Live through Nintendo hardware even if they are no longer successful with their own they no longer have to take the risk of further losses on hardware.