Strategically speaking it would be a sound business decision. Microsoft does hold the competitive edge against both Sony and Nintendo if it pushes that advantage there is a better then fifty percent chance that it could leverage one of its competitors out of the market, or mortally wound said competitor to the point where it is no longer viable as a competitor. Both players are suffering from one problem or another.
Nintendo is currently undervalued by the core community, because their current console has overwhelmingly been geared towards the casual market place. Which is fast becoming a barren wasteland. Nintendo not only needs the early launch due to dwindling sales of current hardware, but they need the real estate to make serious amends with their tried and true core demographic. Microsoft would do well not to give them that space, or give them any real chance to court the third party developers who might spread the wealth thanks to hardware parity.
Sony on the other hand is simply out of position, and has financial concerns to grapple with in the near term. This has to be made clear. Sony is a company and not a charity. Their primary concern now must be profitability in the upcoming year. Going into the red to be competitive is no longer a option. It is only the fast path to management getting a pink slip. Four years of losses are weighing on investors, and there is only so long that disasters that are both natural and man made can garner sympathy and understanding. With the PS3 only recently turning a profit on the whole, and with the Vita on the horizon. Sony is poorly positioned to invest in yet another large upfront loss.
Microsoft basically just needs to show up, and Sony isn't going to so much as think about matching hardware. Yes they can match a year later, but not next year. If they have any plan to be profitable that year, or be able to deal seriously with their other floundering divisions. Would that be good for Sony in the long term. The answer is just a resounding no, but sacrifices have to be made. That year for Sony could be too long given the ground Microsoft has made this generation.
Despite what some have said Microsoft is making money hand over fist in gaming. They are milking hardcore, and building a substantial war chest. They will be going into the next generation on strong financial footing. Seriously how many times do we have to do the math on this one anyway. It isn't the hardware where Microsoft is making a real killing. It is all about Live. The subscription fees, the marketplace, and doll clothes. Not that they aren't going to town on hardware now either.
Microsoft is the only player right now in the perfect position. Either they would beat Nintendo soundly, and thus leave the way clear for Sony a year later, or the opposite could happen. Microsoft and Nintendo actually end up pairing off against one another for the generation. Leaving Sony with nothing when they show up a year late to the party. Either way Microsoft wins a victory just by virtue of showing up to the dance. This generation was really backwards. One being far ahead, and the others arriving later. Would not play out the same if two showed up first, and then a third showed up later.
Anyway nobody believes me, but Microsoft is doing something far more relevant to sales this holiday season by totally revamping the Live interface and functionality. It is the only substantial value increase on tap, and if they do another spectacular marketing job with the new functionality. Then it is probably going to spurn on wider appeal with potential consumers. Far and beyond what a modest price cut would generate. Not to mention it is the only thing this holiday season that is going to have long term consequences.
I don't know why people aren't getting that novelty is a powerful driving force in the console market. After all we saw it drive the Wii through the roof with less then stellar hardware and software for that matter. Why wouldn't a console you can talk to do the exact same thing. I know everyone is dismissive, but for the gotta have the next cool thing crowd that is just totally sexy.
Personally, I can't wait for the next generation, I even have enough money to buy games now! 
