Really their isn't a whole lot for MS to worry about, Sales of the PS3 are not threatening and most of the big guns for the PS3 are not coming out till 2008. So MS still has another year they can kind of slack off on.
Until the PS3 starts to pick up steam they are of no concern to MS.
And really the only way thats going to happen is if Sony drops the price of the PS3 to compete with the Xbox360 price. The average gamer doesn't care about Blu-Ray or all the extra features the PS3 has, all the care about is the games and when they see the library of the PS3 vs the Xbox360 their is very little difference they see, sure each system has their exclusives, but are those few exclusives worth the extra $200? not for the average gamer. And trust me when an average gamer goes into a store and sees the Xbox360 priced at $299 and the PS3 listed at $499 they don't care that they have to buy extra stuff for the 360 they just see those first price tags and that is what pushes them to the Xbox360. Even if they look at the Premium which is $399 that is still $100 difference and that is a lot of money for most average gamers.
MS is in a good spot they are getting a majority of the same games as the PS3 and they are cheaper. Sony's personal line-up might be popular enough among the Sony fans to justify the price, but it isn't that popular among the average. I loved the Jak series, but would I buy a PS3 for it, no. And I really did not see any games at E3 that would make me want to buy the system for $499. Once I do get a PS3 I would be willing to pick up a couple of them at Greatest hits price but none of them at new price.
As long as Sony can keep MGS4 and FFXIII exclusive to the PS3 they will start to grow. But with the small user base and MS deep pockets I wouldn't hold my breath that they will stay exclusive forever. This xmas is going to be very key for Sony to keep those games and unless they drop the 80GB PS3 to $399 they are going to lose this xmas to the 360.
Killzone 2 is no Halo3. The fanbase and pop-culture phenomena that Halo is Killzone could only wish they could tap into 10% of it. Killzone might be popular around the hardcore Sony fans but Halo is far more then just another run of the mill FPS. Halo is Huge you have a movie in the works, comic books, tabletop game, books, t-shirts, action figures. Their is a whole lot more to Halo then just another FPS. And cause of that it will sell a ton of systems. If you as any person off the street if they know what Halo is they probily will, but if you were to ask about KillZone they most likely won't. MS was very smart on how they marketed Halo and they also lucked out with being able to buy out Bungie to get the game. Bungie was always know for making Amazing games among the Mac community and MS knew that Halo could be something really huge, and as history shows it was.
I'm all for new ideas and changes to make games more fun and different, thats why I'm a big fan of the Wii.
But it seems that people like FPS the way they are. It just goes to show the old saying "if its not broken don't fix it". =/