How important has it really become for them now that it has become a profitable venture?

I don't think it is as much as it's other properties by a long shot, but it is growing in importance.

It is still a very tiny business for MS, but it keeps growing.

Today, MS has a gaming machine in 31.5 million households, 20 million of them are using Xbox Live. It is great to have a popular product in your portfolio. The connections between Windows Mobile, Zune and Xbox360 will become more important. The Zune videostore on the Xbox360 is just the first step. Soon you will be able to check your Xbox Live Account on your mobile phone etc.

The Xbox360 is THE platform for Video on Demand. Before the Xbox360 started its VoD offerings, VoD was something only a few people believed in. Now, VoD is on its way to get mainstream attention.

So the Xbox360 might be a tiny business for MS, but all the things around it went pretty well for Microsoft.

I agree, the Xbox line is a means to expand a large array of products into the marketplace.

Yeah i also wonder how much they make now, Windows 7 will make a nice profit.

its pennies for their bottom line and overall still hasn't made much profit if at all. But if they truly do support the 360 for several more years it should become quite profitable for them as the most profitable years of a console's life typically is the middle to end years. I think their next big thing is going to be in game / dashboard ad revenue because it is a new stream of money they are about to really untap. I am still surprised games don't ship with a game trailer that you are forced to watch like DVD's.

A lot of analysts have speculated that in the late 90's MS saw console gaming as a threat to their computer OS business especially with the ability for them to connect to the internet.  The best way to defend the threat would be to "jump in" and get a piece of it. (think about this, why doesn't Xbox have a web browser? answer: Because they don't want you to quit buying windows)

They have had very very little profit. I think last year was the first profitable year for the XBOX franchise. this year they made about 170million total, the same as a single game could potentially make.

Nintendo on the other hand, made 5.5billion USD this year.
Sony in the negative a couple hundred million, 400 i think.

For the record, a single game generating $170 million has to be incredibly rare. Some developers have a hard enough time breaking even.

As I've mentioned, Live services generated a billion dollars of revenue for MS in the first 5 years. Its also growing faster.