Any third party be if Apple (Quicktime, MacOS Code Stealing,), Sun (Java), Real (Real Player) Networks, IBM (DOS, OS/2, etc  ...), AOL, Netscape, Mozilla, Opera, Be Inc., Burst.com, Caldera, Spyglass (creator of Internet Explorer), Word Perfect, Borland has been at the short end of the stick at their relationship with MS. Sure in the short term they benefit, but in the long term they most certainly burn their hands and bridges with MS.
Epic, Id and Rockstar and a lot of other third parties have realized that if MS wins the 7th generation console wars outright, MS will be gunning for them next.
Game Engines are the biggest money spinners for Epic and Id. Just look at the insane number of games that are using Unreal Engine 3 and Unreal Engine 2.5, with Id’s Doom3 and Tech5 engines not behind. MS has been salivating at the profits made by game engine developers and by the time the next Xbox is out, MS will be having their own game engine that is bound shake their foundations. True to MS’s business strategies, third parties will be encouraged to use the MS Game Engine and heck they may offer it at a discount or even lower royalties to early adopters. Soon Epic and Id will find that third parties are dropping their engines like a hot potato and moving in droves to the MS Game Engines.  With insider knowledge of the functioning of the Xbox architecture, the MS engine could be skewed to perform better than any competing engine.
Both Epic and Id have come out strongly in support for PS3 in their game engines. Poaching of lead developers/game designers will be another problem third parties will have to deal with. With MS looking at expanding their first party content, lead developers will be highly sort after and I suspect Epic and Rockstar have had to deal with the situation which has forced them to reorganize their priorities. 

Ms has its own 360 game engine ?

I was referring to a MS Game Engine on the next Xbox console. Epic, Id and Rockstar have been pretty happy with the X360 so far and have been supporting it to the max., but I suspect MS has tried something that has got them thinking about their future, thats one reason why they have shifted priorities to the PS3. Third Parties need a strong PS3 to offset any threat from MS.

i can't understand your writing. It was too frustrating to try to read. I gave up after the first sentence. Sorry.

During the original xbox, you may remember that Microsoft went with nVidia for the graphics chip in the system. Long story short, disagreements arose regarding the monetary agreements between the two companies, and MS ultimately took nVidia to court (though it was later settled).

During that time, MS was also working on their DX9 API for Windows, and speculation suggests that MS sort of left nVidia out in the dark regarding the specifications and such (out of spite, perhaps), which resulted in the infamous "FX Fiasco" lineup of graphics chips, that were quite inferior to that of their competitor's series (ATI, the designer of the current X360 graphics chip, Xenos).

 Mind you, much of nVidia's downfall with the FX series was a result from poor yields / bad process tech, but many analysts suspect that the sour dispute between MS and nVidia had a role to play in it all.

Today however, I don't believe that's the situation (atleast in the graphics division of things). nVidia is really the only supplier right now of viable DX10 solution GPUs, and MS is trying to push Vista like no other.

That might not answer your question, but I thought I would atleast mention it, nonetheless.

You do realize that a large majority of studios use their own proprietary engine correct?

All in all though, MS making a game engine couldn't be a bad thing. If it's bad, then nobody will use it. If it's good, then hopefully people will use it and make some fun games.

Nvidia's FX plans were partly delayed because thye spent a lot of their RnD resources on the Xbox MotherBoard Chipset and GPU. Nvidia were of the impression that DX 9 would support thier CG shader architecture. MS was basically pissed off that Nvidia would not reduce the price the chipsets used in the Xbox and actually went to the courts to force nvidia to reduce their rates.

It is suspected that MS went behind nvidia's back and gave ATi a few tips which greatly improved the performance of the radeon 9xxx series of cards. Such as using shader model 2's required minimum of 96-bit FP24 for full precision. For a game title to use FP16, the programmer had to specify which effects used the lower precision using "hints" within the code. Because ATI didn't benefit from the lower precision and the R300 performed far better on shaders overall, and because it took more effort to optimize shader code for the lower precision, the NV3x hardware was usually crippled to running full precision full-time.

 I suspect a few third parties do not want to see history repeat itself and realize that a stronger PS3 and Wii is very much in thier interests.

No, theres no way that X360 developers are feeling intimidated, outside of getting rushed by publishers to create a game that's good, and comes out at the right time.

If MS made, or bought a proprietary game engine (ie, bought UE3 exclusively, or something), it'd be a very very good thing, as it'd cut MILLIONS off the cost of big-budget games, and hundreds of thousands of dollars off smaller games. And like others said, it wouldn't be forced.

As I stated in a huge post "biggest blunder of next-gen", the most important thing is very, very good SDK toolkits, and awesome developer environments. This single handedly won Sony so much marketshare in 1995-1996, because the PS1's SDK was written in an easy-to-understand SDK written in C, rather than clunky old Assembler code. It allowed newbie devs to write great software on the PS1, stealing alot of the "uber power" of the far superior Sega Saturn and Nintendo 64.

So MS developing more, and better SDKs, development engines, and a better developer environment is a very, very good thing.

Sales wise, there should be no intimidation from MS - consumers love buying X360 software, so this is why 3rd party sales are so great.