Now that Sony's(and Microsoft's) convergence plans have been been rejected by the market and Nintendo isn't a threat, then there isn't really a reason for the Xbox to exist anymore, now is there?

If that's the case, then Microsoft should just devote it's resources back into the areas in which it actually performs decently on a consisten basis, operating systems and office tools.

Huh?

Microsoft has done just fine in the console market...

They are not dominating the market, but are doing a fine job for only being in the console race for parts of two generations. 

I actually expected MS to be where they are at right now.  The only surprises for me this generation are that Nintendo has retaken the role of the 800-lb. Gorilla and Sony has fallen so quickly from domination.  MS hasn't been spectacular in the war, but certainly have proven they deserve to be in the fight.

 This sums it up ^^

There was a time everyone thought Sony was unbeatable. 

It's strange some people seem to think there's no way it can be taken away from the current console leader when we just witnessed it happening to the previous one.

MS does not need to target Nintendo at the moment. MS have Sony by the throat and they are not letting go. MS is focusing on competing head to head with Sony in HD console market it is XBox 360 Vs PS3.
Next console generation MS could be facing off against Nintendo for first place. Sony will hopefully still be alive with PS4, next generation, trying to rebuild from PS3 era.

@ Squilliam

 "P.S Where did you get that figure for R+D @ $5 Billion? I don't see how they can spend $1,000,000 per employee! ."

Actually it was meant to say 5-8 Billion JPY R&D or 87 M USD, a more believable figure  but still a bit too much per employee especially since some must be admin types. I'm sure the answer is that not all research is inhouse. We do know that deveiopment of Motion+ was outside.

 Difference is Nintendo is run differently than Sony, Nintendo first off innovates constantly, even during the GCN and N64 era, they were expereimenting with ideas that came to fruition in the DS and Wii, in addition Nintendo always goes for profit, so even if they lose a gen, they can take the long view, Nintendo beat Sony because of that, MS, will be much the same, even if they win a gen or two, Nintendo will just keep experimenting and come back with another disruption

 None of their eggs ever put the companuy at risk, look at Sega, they bombed a few times and are no longer making consoles, Sony failed with the PS3 and people are already talking about their potential demise, if they flop another gen, they probably won't be back, Nintendo however could get knocked down again and they'd just keep experiementing and then come back in a gen or two and totally retake the market again.

MS can't steal consumer from sony and sony still have 20% on marget share in this generation. Now, MS target to steal consumer form Nintendo because wii don't have so much consumer loyalty as like Sony, 50% marget share on Nintendo can change easier than 20% on Sony. In the end of year maybe you will see something with marget share percentage.

Yes,