While some of this sounds reasonable, I doubt the rumor on the whole ...

The smaller, (relatively) less powerful, less expensive, and more energy efficient part is what I would expect because (between the RROD and opportunity lost of being a $300 XBox 360 vs a $600 PS3) I believe Microsoft has reason to tweek their hardware strategy from the last generation.

With that said, I'm very doubtful they would use an arm processor and I have doubts their system would be based on "Windows 9". Backwards compatibility, while not the most important feature, acts to lock people into a platform because (regardless of whether they will play them or not) people don't like to think that they will lose the option of playing their old games. By switching architecture you are likely going to release a system without backwards compatibility (or with limited BC) unless the system is dramatically more powerful; which would not be the case if the rumor was true. At the same time, while I wouldn't be surprised to see features that won't be available until Windows 9 is released, I doubt it is accurate to say it is based on Windows 9.

I forgot that! (clear symptom that I don't give a f*** about iOS games)

Thanks for reminding me.

I think you're overstating the importance of backwards compatibility. The PS3 is doing well enough without PS2 compatibility, and I think Microsoft already has enough incentives to keep people on board through Live accounts. And while you may be right in calling out the Windows 9 part, I wouldn't be surprised if Microsoft would in fact do just that.

Considering the recent move to support ARM, and the efforts that Microsoft have made to shrink Windows 8, I don't think it's unlikely that Microsoft could use this as an opportunity to bring more unity to their ecosystem. If they can size down Windows to what is needed for the Xbox, the NextBox may very well be based on Windows 9. It remains to be seen if this will be a popular choice amongst developers of course, not to mention how it might actually be done, but I think it's something Microsoft wants to have.

Win8 will work on ARM. That's one of its big changes so they can have a universal OS for all their platforms.

I'm not trying to imply that backwards compatibility makes or breaks a system, but it can be the deciding factor for millions of gamers ...

This all sounds very plausible and very cheap for MS to put together while still offering a nominal increase in performance just as I have been predicting.

It would also allow it to merge more with the mobile aspect of MS and allow the phones to truly become their defacto portable vs putting out its own 3DS/Vita style device.

Of course it can, I just don't think it's that important here. And BC was only meant as the subject for about two lines of my post anyway.

All that radiation you get exposed to has given you super-powers.

BELIEVE!

BTW dev tools have by now evolved to such a degree of platform agnosticism that what keeps x86 still so strong on the desktop are, mainly, legacy programs that developers aren't willing to port to other architectures even if it just requires recompiling, and, less seriously and more easily surmountable, device drivers for peripherals and expansion cards, like not low power consumption GPUs, that aren't used yet on anything else than desktops and workstations, so they won't be developed for different HW architectures until they'll be (or they'll be able to become, if some producers commit themselves to push them and take the financial burden of supporting drivers development and support at least initially) widespread enough.

Edit: device drivers are really a small problem, HW producers are already willing to develop them when granted enough market for architectures different fron X86, they already do it for consoles, just to make the most obvious example, they did it for the Mac too when it was still based on 680x0 and PowerPC architectures, they did it even for Amiga and Atari computers, before their decline.

Windows what?!