A PS4 comparable in price with a service that offers much better value than Xbox Live.(Playstation Plus)

Their own greed.
Their shift towards the casual market (Ties into greed).
Their lack of presence in Japan.
Losing their dominance in Europe (Except for the UK).

I think they have 3 obstacles:

1. Lack of confidence because of RRoD, early adopter will think it twice (or maybe more times) because of the many issues that they had with the RRoD, and that can cause the early sales to be lackluster or be splitted with the competition.

2, Overshooting with the hardware, they can create a very advanced and expensive hadware that people will not be willing to purchase and if not in the development vicinity of the competiton the 3rd party developers will not take advantage of anyway

3, Balancing the casual and the hardcore, all seems to indicate that the next box will include Kinect 2.0 but how much of the developing effort will be expend on creating games or functionalities for it, instead of creating hardcore exclusives? They could sell very good numbers focusing on the casual crowd (they are legion) but they purchase very few titles and the backlash from the rest of the community can be harsh.

Worst case will be a combination of all 3 obstacles at the same time, option 2 is just a maybe and it will depend not only on Microsoft but also on the competition so there is nothing they can do about it, but the other 2 are real posibilities that they must face/discuss internally to avoid if they can.

The economy.

1. 1st party titles - Most people remember Halo, Gears and umm?.....( I can only remember those two games when I use to own 360)

2. Steambox -Valve "American contender" (We do not know the price, but if it is $449 that is definitely adding spice to the competition. STEAM eats Live and has impressive software sales (holidays and black friday) I assume they can launch the console with software sales if they wanted to. ***Some people say they will not be that much of a competition ***
I say they will be in the long run. They will start slow but will be building up momentum as people get introduced.
I will stop piracy habit totally when they release their console because of their software sales like in PC.

3. They lost Japan.

4. Is Steam, Nintendo network and Playstation Network free?

Destroying Microsoft in competent game development.

Gears isnt first party.

I know is not. I can only remember those two games when I use to own 360.

EDIT FIX

I think RROD is/was a forum phenomenon. Things which sound big online aren't always big in real life, aka the Ron Paul effect. Besides the solder was the reason behind RROD and it effected all nVidia mobile chips at the time, PS3s, Macbooks etc so it wasn't limited to just Microsoft. If it were really a big problem then they would offer a two year warranty right off the bat, I.E. if the general population actually cared.

I think they are still suffering with he reputation that their hardware is unreliable. The 'Red Ring of Death' is catchy, and while really hasn't been a problem in a while, is still in people's minds. It didn't help that when they introduce the Xbox S, and the first reporters moved it while it was running and shredded a disk. (I understand a little damper would have prevented the problem.) They need to make sure the system is strong enough to handle the silly things some gamers and kids do to their systems.

And price. I hope their new system is a powerhouse - with improved Kinect quality. While it gets alot of hate here, Kinect is actually pretty good, but makes you realize how great it could be. But ever little step requires, I estimate, about twice the power. More power, higher price.

They have shown that they don't need Japan's support to do well. It would be nice if it would be supported in Japan,

Third, I think they should show the 'high maintenance' gamers they are still committed to the core. It's not a requirement, but they are the ones that really built the first Xbox, and it would benefit their reputation if they refereed some new hard core IPs.

Edit: Figher reminded me of SteamBox and perhapse Apple or Google might make a game system - or work with a competitor.  They could be trouble.

I don't think the cost of Xbox Live is a big deal, as I think the others will go that way too at some point.