They actually almost have no capacity to do so.

Yes they can buy exclusives but they can't buy the right ones.  They need definitie hardware movers the likes of FF GTA or MGS and thats just not gonna happen.

There no way they can reclaim their former software dominance, they simple have no way in competeing with Sony 1st party.  No one does.

MGS, GTA and FF aren't first party.....

And I think if you claim noone can beat Sony's first party then you're going to get swamped man.....seriously pull out while you still can.

 No shiet they arent, but they are the type of exclusives MS needs but cant secure.

Who can beat sonys 1st party then ?

 Not Nintendo.

Sony and Nintendo have very differant games and focus on differant demographics.  They almost have no direct competitors.  Nintendo does not have anything to challange Sonys Gran Turismo GoW Singstar Getaway Socom Uncharted whatever.  And as far as 1st partys there are only 3 right.

Unless you think MS can directly take on Sony. 

As long as pokemon is around Nintendo has the best 1st party games imo. (Main series not the spinoff garbage.) IMO sony needs a killer app rpg that they wholely own. Some could say the FF series since sony owns some part of SE but FF's show up on every console.

OT: As reggie of nintendo himself put it "If I were an invester I would not be happy with the xbox project." With that said MS has branded themselves as"the hardcore only box" From the name using an X as in "extreme" to the franchise titles gears and halo both being M rated. Ms needs the casual crowd. Rare alone is not going to bring them in. AS michael pachter said on bonus round MS selling family games is like parents going to victoria's secret for baby clothes. In other words hes saying that if a family is looking to buy a console the 360 is probably last on the list because it has branded itself as a hardcore game console only. MS needs casuals, they wont get them or if they do it will be a small amount.

Nintendo obvously has the casuals in a stranglehold and even sony is better posisitioned. to reach out for the casual audiance with proven franchises such as Jak, ratchet series, singstar, lbp has inviting characters vs. buff men with chainsaw guns, you get my point. Also blu-ray is a big win for sony in terms of people wanting to upgrade to HD movies.

In other words: Huge sales= Casuals >Nintendo >>>Sony>>>>>>>>>>>>>>>>>>>Xbox360

Compete in what?  Review scores?  Nintendo, Capcom, and Take-Two have recent game of the year type games (Zelda TP, Okami, SMG, Halo 3, Bioshock, Zelda DS).

Game sales? Take-Two, Nintendo, Activision, EA, and even Sega are able to compete with Sony when it comes to game sales.

Casual games?  Wii Sports, Wii Fit, GH3, Mario Party, and Rockband sell better than Singstar or Buzz.

Sports games?  Nintendo, EA, and Konami sports games sell better.

GT is a great game that always sells better than its competition.  Mario Kart DS and Mario Kart Wii are begining to give it a run for its money, though.

What else does Sony have that makes its games so special?

Franchise-wise:
- nintendo owns franchises from Japanese TV, and a bunch of great fun titles.
- Sony owns a decent number of great titles, generally more mature/darker than nintendo's.
- MS owns halo and a few other odds and ends.

The rest is mostly cross-platform... (that means 'all console' - wii/ps360 [or] ps360 only [or] wii only - there's very little reason for an independent to build a game exclusively for one of the HD consoles).

In answer to the question, the 360 will probably finish 3rd unless something changes (and I don't mean price cuts). The Wii is the 'fun console with the cool controller', the ps3 is the 'HD console which plays blu-rays' and the 360 is the 'other one'...

Its easy : Nintendo will be 1st profit and hardware wise at the end
Sony will be 2nd hardware wise , but 1st 3rd party support wise and they will make a profit
MS will be 3rd hardware wise and 2nd 3rd party software wise and they will probably loose all the minimal profit they made :)

...

360 is DEAD in Japan ...
In Europe dispite its recent price drop SONY is rapidly gaining ground
In North America its been 50-50 lately ( SONY / Microsoft).

Based on this 360 has no chance of beating Wii this gen ... hell i don't even expect them to beat PS3 ...

...
Ofcourse if Microsoft make money this gen then its possible that Microsoft will end this gen in a good spot ...

Ohh and i have a feeling that M$'s plan was
1. Xbox creates brand name
2. Xbox 360 destroys SONY dominance
3. Next-Box Wins = Profit

... but i doubt they factored in Nintendo's comeback with the Wii and HUGE Makret Altering effects of the Wii which will make next-gen interesting ... ( will Nintendo continue with the Wii-mote or move on ? Will SONY / Microsoft copy Nintendo ? Innovate ? or remain the same ? )

The only place the 360 has a shot at not being last place is in NA. But even in NA I think it will be last LTD.

But I do not think the PS3 will pass the 360 until after the 720 comes out.

As long as Microsoft has decent games on it's console it will survive. Xbox 360 will probably come last at the end of this generation but not by a huge margin as PS2 and Gamecube. I think the numbers will be very close as the 360 has got some brilliant games and if it struggles with the ps3 with that then there are not enough people interested in playing some of the most super-steller games this generation.

EDIT: The Wii caters for the non-hardcore gamers something I think Microsoft has no interest in as their console is all about pushing the hardware to its limits. Look at developers like EPIC who have no interest in making a Wii game because they see they can make no money from it and they want to carry on pushing the latest hardware such as PS3/360 to the limits. Perhaps the Wii will be like an introduction for casual gamers who want to go on to the next big console. 

Much like the effect of Blink 182 and Avril Lavigne of getting people interested in the genre of ROCK!