Is the living room the future of home computing for their survival? Could the Xbox one day be the saviour of Microsoft by becomming a huge cash cow for them like Windows, office, etc? No doubt their third iteration will do much better than Xbox 360 did. They broke through so many markets this generation but more importantly they diminished the power of Playstation as the "defacto" gamming system. No, Nintendo could not have done it alone. Microsoft kept them in check from day one of this generation.

Nope, XBox is a tertiary market for them.

Very doubtful. X-box offers no form of tangible media which appeals to a wide audience. Their target demographic is 13-25 year-old males who are hardcore gamers. There isn't a potential for it becoming a bigger cash cow than windows because the market is so narrow.

The X-box brand is more like a trojan horse for their PC market because it increases M$ as a brand-name to a demographic that may not be as interested in PC's now but in a few years they'll have jobs that require software, or going to college and need a good word processor, or OS. X-box will bring in new PC clients from this demographic but it will never be the cornerstone of their business model.

A lot of doubts here regarding this.  They're not a consumer product company, and they still have a lot to learn.

People often make the assumption that Microsoft is a software company, but anyone who has ever used their software should question that because they're not particularly good at creating software. You may now be wondering why they're such a successful company (and why they sold so much software) if they're not a software company ... The fact of the matter is Microsoft has always been a service company, and if you talk to large companies they will tell you that the main reasons they buy software from Microsoft is that they provide the best training, quality support, and are the standard (which makes it easy to find employees).

As more and more devices become more powerful and can connect to the internet the PC becomes less and less important as a device to deliver services to people. The XBox 360 and Zune are really more about developing products so that Microsoft is in a position to deliver new services to people as they become more popular.

Yep, and they are extremely good to developers, as long as they develop for their platforms. :)