Not much will change.

1) Third-parties already have all their top teams working on HD engines and titles and that isn't going to suddenly change for another year or two at least.

2) Third-parties already have the engines build for easy game churning on the HD consoles, not to mention the easy availability of good engines to license, where they'd have to start from scratch on the Wii to make a good-looking title there.

3) Third-parties can still sell to a bigger userbase by going 360/PS3/PC multiplat.

4) Third-parties are still afraid of trying to compete in selling software head-to-head with Nintendo, whether that's justified or not.

You'll see a whole lot of posturing and empty announcements (already have been really with all the financial statements) but not much will actually change in practical terms.

 Zune says hi.

Actually, they're lucky that the Microsoft entertainment division is incompetent, and that they themsevles seem to have some talent for this whole games thing.

Exactly, and I didnt say that the MS corporation is short of $$$, only that the gaming division seems to be given a limited budget based on what subjective sources that we are able to interpret.

Come again?

Microsoft is doing what they can within reason.  Their investors are going to let them throw money out of the window to the tune of over $6,000,000,000 so far, and they've missed it time and again when they said they'd be profitable.    One thing that's clear is that Microsoft is very far from the Xbox brand giving them a profit overall, and the first step in that direction is a profitable year.  They want to show investors that they can take that first step, and if they can, investors could reason they may only be half a decade from recovering their huge losses so far.

There is almost nothing MS could do it make the 360 outsell the Wii right now.  Microsoft knows this, so they've redefined their race from "the Wii can't compete because it is laughably weak" to "oh snap, they're virtually assured to end up ahead of us so let's say that our only competition is Sony, then say that Sony does nothing but video games whereas we are well diversified."

Of course, reality is the opposite of what Microsoft has said (Sony is far more profitably diverse than Microsoft), but Microsoft is trying to convince investors.  Perception is very important.

compared to last gen MS will have:

increased marketshare in all regions
increased profitablity
improved Live, including movie distribution

of course the RROD is a big stumble, but they will eventually meet all their goals and set up for XB720.

Don't expect Microsoft to pull out after this generation. Losses right now are like ~$7,000,000,000 for the Entertainment Division since Xbox launched. By the end of the generation, losses will either be ~$10,000,000,000 (Microsoft keeps losing money) or more like $ ~5,000,000,000 (360 becomes profitable for a while).

Most analysts believe Microsoft won't leave unless they lose over $20,000,000,000 on Xbox brand/consoles/gaming. They have at least two more generations of huge losses for that. At some point before then, I think that Microsoft will be consistently profitable in the industry.

As for the 3rd parties...economics right now make the support about a dead heat. High end PCs, 360 and PS3 have ~14+ million users, Wii has ~ 10 million users. The 1.4x greater userbase offsets the extra expense (say on average it is 2x as expensive to develop for 360/PS3 over Wii) in cost for developing for 360/PS3. If Wii has 20 million users by year end and PS3+360 amounts to 22 million users, the economics shift to Wii - especially in Japan (Wii sales> 360+PS3), and by the end of the year in Europe Wii sales could be greater than PS3+360 combined. Because of the delay in the USA market, 360 and PS3 will continue to get strong support. However, most of the biggest publishers need Europe/Japan, which is why I think the change will begin with the biggest publishers by region (Ubi Soft, EA, Square-Enix) and the smallest/niche publishers (Atlus, Majesco) before reaching the middling developers (Take Two, Codemasters, Midway) who have the most to lose from reading the market wrong and reacting poorly...

I think one thing not taken into account is what the Deluge of games onto the Wii would cause, which is lower sales per game on an already more "limited" MSRP.

Its strange, but the $60 MSRP for the 360/PS3 and attractive Paid DLC Options, cost gamers, but help insure that developers can hope to recoup most of their money either quickly or in the long run. More so when the Used Game market is eating their profits alive.