This is a very interesting thread. There is a lot of good arguments even if contradictory sometimes. I mean, they all have their own merit and value based on what we know and what we can garner from past console history.
Imho, I believe MS has lost already if we keep looking at the parameters we're used to (i.e. exclusives, performance of the console for 3rd party games, etc). That being said, I believe it puts MS in an interesting position whereas if you look at what everything people here think MS should do to improve, it is almost impossible to realistically execute a successful plan based on these parameters while Sony will still keep on plodding forward and do what they do best. MS knows that it isn't just a matter of catching up to Sony. They know that even if they do all of what we propose the right way, it still will not be enough. They have to do major changes to their approach of gaming and the type of experience they want to offer gamers.
One thing that is for sure, they are not in this business to be 2nd place. I believe that in order to make the most out of their current situation they will have to look at what hasn't been done before. They will have to innovate and bring not just exclusive titles but different gaming experiences and I'm not talking indies here. When you look at a good portion of their userbase, many of their customers were avid multiplayer gamers whereas Sony's userbase is in part more inclined to play single player games. I don't know, its just me but I think they will come up with amazing ideas for the future that will be based on multiplayer experience. I believe it is still one of their strenghts and that they will probably look to capitalize on this. They are known for their multiplayer network and everyone recognizes that it is top quality.