Well, I've yet to see M$ fail with anything they put their mind on. Bill Gates have had his mind set on taking over the living room for a long time... so I'm sure they'll find a way to compete. Besides with the insane fan base for Halo...... Halo 3 will probably sell 8 million xbox 360's on it's own
If M$ is unhappy with the way things go, well maybe they'll just buy some of Sony's flagship developers and convert all the games to xbox 360 exclusives
It's pocket money for them anyhow