Nintendo should have just agreed to use a Windows kernel on the GameCube to placate MS. I think that's what they initally did is they went to both Sony and Nintendo and asked them to use Windows and both declined, only after that did MS start taking the idea of an "XBox" seriously.
Who cares what OS a game system uses anyway, the Dreamcast had one and it didn't really effect anything.
Allowing another multi-billion dollar company into the business when you have just been routed by Sony the previous 5 years was a bad move, if they could have kept MS out of the business, they should have done it.
All Microsoft really wanted was something to hedge against Sony, what MS was too stupid to see coming was that Apple was the real threat for the 2000s/2010s, not Playstation.
If it was only PS2 vs. GameCube, PS2 would've won easily, but I think the GameCube would've sold a lot more as the only real alternative and many of the GCN's positive points (being far easier to program for than the PS2, Resident Evil exclusivity, better hardware than the PS2) wouldn't have been drowned out so much. The XBox really kinda took the thunder out of all the work Nintendo did by making the GCN easier to program for than the PS2 and more powerful by basically offering the same things, maybe even easier to program for because it used PC tools that devs were all familiar with.
