A lot of people have suggested that with their XBOX products Microsoft's true motive is to take over the living room as they have done with the office. However I don't think that's their style. They as a company have been defined by their products MSDOS, Windows and Office each product is software available for any standard retail PC. To suggest that they would or could do this with Hardware would be very naive or optimistic. They primarily are a software company and their main business revolves around their relationship with OEM's (Original Equipment Manufacturer's).

The way things typically happen is:

1. They make software,
2. Companies like Compact and Dell license said software,
3. Microsoft gets a percentage based on the number of units manufactured.

For obvious reasons Microsoft never makes their own PC. Fort them to make hardware for the purpose of taking over the living room would be going against their current business model. No they would try a version of what they did with the PC space. They try to license software to TVs, set-top-boxes and console makers.

They actually did that with the Dreamcast (It has a version of Windows CE on it) the other console makers were more reluctant in that regard. As far as Set-Top Boxes are concerned they seem to be doing this with their Mediaroom Platform. But tying a platform to a premium service like IPTV severely limits it's availability and popularity.

I think if they really wanted to dominate the living room they'd have to make software that TV manufacturers would have to offer consumers:

Full fledged Internet browsing for the living room.

...That's it they'd have all the TV manufacturers eating from the palm of their hand and with that they'd own the living room.

I saw a video of a TV at the CES which had the Xbox 360 Natal interface built in. Is that something like what you're talking about?

That would be great.

@Squilliam

I wouldn't know much about it. As long as it's something that would clearly be widely adopted by TV manufacturers, set a new standard for TV and which they could maintain control over. (i.e. prevent clones from getting a foot in)

It seems there is too much competition, as well as too many companies that excel at different things for one box to take over the living room.

@unsigner
Each Dreamcast had Windows CE on it. Even if developers didn't use it SEGA still had to license it from Microsoft.

@suy78
I'm not so sure. Most Computer and Electronics manufacturers don't stray too far from their competitors. All it would take is for one company to offer a feature for which only they can provide that would be necessary for all the manufacturers to license in order to compete.

This may be straying a bit, but this is an example that came right off the top of my head. I have Bose speakers in my car, to go along with a Kicker amp, my Pioneer dash, and my Apple Ipod. All were around the best I could find for each respective category.

@suy78

Look at all the manufacturers who want to compete with the Ipod which is the #1 portable media player. Do they go about it by offering something completely different? No. They clone the sh** out of it. Imagine if one company could offer a feature to these manufacturers that would make their clones on par with the Ipod. (just a crewed example)

Yes, but the question would be could they? The Ipod is the best at what it does. Maybe that's just me. I want the product that excels at what I want in it. It would be hard to get everything put into one box.