Microsoft made it clear that Conker is pretty much a niche character not good enough for a full game outside of a cameo appearance. For its day Battletoads was in my opinion tougher than Ninja Turtles and the characters were more badass, kind of like Street Sharks was opposed to Ninja Turtles.  Of course I was really....really young...but yeah. Banjo is a good idea as well but Rares IP treasure box is filled with great games and I don't think people remember how big of a mark Battletoads made on the beat em up genre in the 90's. Even if they made a low budget beat em up that would still be sick.

How much did the original Battle Toads sell if its not niche in comparison?

The problem here is that most of the quality third party developers are owned by big publishers and they likely have better things to do than to revive an old IP ... 

Funny because everyone was playing the Turtles in time HD remake when it came out on PSN and XBLA. Even a low budget title would do for the new XBLA to separate it from Sony's PSN. MS should really put those IP's to good use. Banjo could be coming, but I don't think making  Battletoads game would interfere with it. Did Killer Instinct interfere with it? No, because Microsoft has hired two devs other than Rare to make that franchise. They could do the same. Development at Microsoft mainly seems to consist of paying outside third party to do work for them anyway.

It's not impossible to make a good kinect game, it's just that Microsoft along with their internal studios don't put in a whole lot of effort to ... 

How can you say Rare didn't put a whole lot of effort into their Kinect games?

I think if it was a highly advertised side scrolling XBLA exclusive, it would more than make its money back and then some. A lot of gamers who play Killer Instinct (Generally the ones between 24-30+) and the fighters are older gamers who would relish the moment of a Killer Instinct/ Battletoads 80's/90's reunion in any way shape or form. It would also introduce newer gamers to an older face. They could also show the devs who made the last Ninja turtles how to make the game properly (not Microsoft). MS seems to be good at picking out third party to make the games for them than developing themselves.

That's what I've been trying to tell him.

Microsoft doesn't know how to run Rare, they just are sitting on a goldmine of IP Nostalgia. Rare made new experiences for traditional games, not peripherals. Microsoft is using them in completely the wrong way. I'm at least glad Killer Instinct turned out well. As I said before, MS is good at finding third party who know what they're doing and putting them to the task of making these games.

You'll know by taking a look at their recent games they've made ...