They haven't recouped all the money they'd invested yet (still about $4 billion short), but they are now turning a profit of a few hundred million each quarter

Meaning they stopped digging a deeper hole?

Or that they do continue to dig, only now it's filling up faster then they can dig?

Meaning that in a few years their investment in the games market will have paid off probably. Investments are long-term strategies.

Video games are such a volatile market, I wouldn't say "probably" about much of anything. That's a big chunk of the danger in dropping so much money to try to grab some market share, expecting to make the money back someday. Of course, at the same time, one couldn't expect Microsoft to stay out of such a "convergence" market, so I'm not by any means saying that Xbox has been a mistake, either.