The Dreamcast was at least a huge leap over the PS1/N64/Saturn, I don't expect a huge leap over the Xbox Series/Playstation 5 on the next console.

I mean there's plenty of people who complain that the PS5/XSX isn't a "huge leap" over the PS4/XBO. People need to look beyond a pretty screenshot mentality otherwise it doesn't matter whether the next Xbox comes in 2026, 2028 or 2030 it won't be a "huge leap" for them.

Honestly it is probably the way to go.

It wouldn't be "ending" the generation early because the Series console will get support for almost as long as the PS5 does. They'd need to distinguish themselves from a Pro console though and since it wouldn't be from exclusives, they'd need to really make some sure the system has some flagship games where the generational comparison is night and day ala full path traycing and 60fps.

Although this is true, power leaps are becoming less and less visible to the average consumer. Even if the next Xbox is pushing an internal resolution of 1440p whilst PS5 does a native 4k, I don't think that would matter to most people. Especially if upscaling technology gets over the current kinks it's struggling with like shimmering and ghosting. A slightly softer image is not a big deal if both images are pretty crisp overall. MS' main concern will be making sure it has a CPU that is in the a similar benchmark. 

There needs to be a reason to upgrade the system, especially in the first few years where games are going to be supported by both consoles.  SSD to me was enough reason to justify the upgrade this console generation, there needs to be a reason to be an early adopter.

Based on how this generation has gone it wouldn't take that long for 1440p to drop down to 1080p or even lower and considering that path tracing will probably be getting a lot of focus by then the consoles will be getting pushed hard. My concern is Xbox can't really afford to lose many more customers and ceding the power advantage will guarantee they lose at least somewhat more since a portion of Series X owners will have bought it due to it being the most powerful console. This is why I'm concerned how the Xbox Series will do after 2024 since it looks like they'll have nothing to go against the PS5 Pro with making that by far the best place to play GTA 6 for about a year. 

I kind of feel like it's partly a way to get a bit outside of the Call of Duty contract requirements.

If they have more powerful hardware they can justify Call of Duty on "Next Box" having the best graphics and just say "well it's not our problem that Sony is still in the PS5 generation, we're fulfilling our contractual obligations, but if you want the best version of the game, buy our new XBox".  They could have a window of 1-2 years where they can claim that and try to entice COD players to jump ship. 

The timing of the launch won't matter much when Microsoft has a bunch of other things to address, but if we ignore these other things for a moment, preparing for a successor rather sooner than later is the logical thing to do. That is, if there's still any ambition to sell a lot of consoles. Although looking at the big picture, the most sensible course of action for Microsoft would be to let this generation fizzle out and go full third party, because if they kept making consoles, they would also keep doing things that contradict each other. Namely that they try to push a console and platform-agnostic services concurrently; this just doesn't work, because it makes the console redundant.

Even if Xbox did have a slightly better version of Call of Duty performance wise, I don't think they would openly say anything about it.  They will probably just make sure that each platform has the best experience it can possibly have.  And I imagine after 10 years, nothing will change and CoD will continue to remain multi-platform. Now CoD spin-offs may be a different story, but I don't know, the Minecraft spin-offs have released across platforms. 

Youtube channels like Digital Foundry will point out the performance differences in CoD, but I don't see any reason for Xbox to leverage Cod when there will be plenty of Xbox exclusives to attract gamers into their ecosystem. 

This does make me think that they will drop out of the console business first. 

I'm pretty sure they'll eventually (either alongside the next Xbox or after they exit the console business) release a line of Xbox Gaming PCs that come pre-installed with the Xbox app, include an Xbox controller, and a trial for Game Pass. 

Microsoft is one of the wealthiest corporations in the world, so they could theoretically stay in the console business as long as they're wealthy (no signs of that stopping). But eventually, I think something will give. I'm pretty sure they'll want to bow out with some dignity instead of being like Sega exiting the hardware business in disgrace after all the lost money from the Saturn and Dreamcast.