1) Their experience is in console gaming, not handheld gaming. Microsoft would not be the first to assume that experience from one field applies to the other, but they will suffer the same fate as the others who made that mistake.

2) Here you have a point. This is really the only advantage Microsoft has, but it's nothing to sneeze at: it allowed them to break into the console market, after all.

3) Not really relevant, both because people don't care what OS their handheld runs and because once the inevitable software locks are all in place it won't provide a better homebrew experience than the PSP or DS.

4) This only holds if they can successfully translate those exclusives into portable models of gaming. Given the nature of Microsoft's exclusives on consoles, this seems very unlikely: shooters have not tended to translate well, sports games translate only slightly better, and that's pretty much where the sets "popular," "exclusive," and "Microsoft" intersect.

5) You're still making the assumption that portables are just smaller consoles: the attitude that has killed every last one of Nintendo's competitors in the market. The momentum from the console market simply does not apply to handhelds, and likewise with the reverse: otherwise the PSP would be dominating the handheld market due to the PS2's momentum.

a cell phone with gaming capabilities will help them to introduce the new windows mobile interface...