Well, I still think from a business perspective, it might have been a smart move (although I morally have an issue releasing something I know is sub par).
Doing what they did allowed them to release there console a year before they should have. This gave them a year with no rivals. It also caused Sony to rush there console to market before they wanted to. Before they could develop there software tools, and making them stuff PS2 hardware for BC.
It's a double edged sword though, as Sony did take a huge hit in the gaming world due to MS forcing the PS3 to market early, It allowed Sony to get 9 million BR players out there, and thus helped Sony with the Format war.
So if you add up all the pluses for MS, releasing Junk hardware was a smart business move.
Funny, they have been releasing junk software for years and turning a huge profit, mine as well try it on the hardware side too! ;)