MS could make development cheaper but still charge a 30% tax on game sales (which would actually be double what they take on a disc game).
what you describe ("if you aren't big and selling enough games, there aren't enough of you to pay the bills") is exactly the thinking I used to see inside Microsoft, not just around xBox, but around various development tools. it is a really really weird mindset today, though I think for xBox in the early days, when you really needed some low-level hardware tools to get the best juice out of the GPU, it still held a bit of whater. but that was then, and now game engines and GPU programming are much much easier. both Apple's XCode and Android development tools are basically free and there is a vast quantity of good quality graphics and physics and GLSL open source to draw on. they need to change their thinking about tools and access. they have to believe that developers will come and make great games and will be willing to give you a cut if you give them distribution, promotion, and access to your huge installed base of consoles.
I just bought a fairly capable gaming PC for around $1,000. It's not the absolute fastest thing but it certainly performs more than well enough for all the indie games I've bought.
" for all the indie games I've bought."
Those are typically not the graphics-intensive ones. I'm not sure what specs your machine make it into a 'gaming' PC, but I have yet to see anyone in the industry call a machine with the specs that 1000$ gets you today a 'gaming machine'.
There are some interesting forces at work here. The amount of time and effort needed to build a truly cutting edge game console has historically been high, further tools to get the most performance out of the hardware have required similar investments in expensive engineering time. This combined with selling the consoles into a very price sensitive market.
In order to recoup those costs, given the market realities, the console makers have traditionally resorted to extracting a 'tax' out of the game developers. On the theory that charging a few extra $ for your game to cover the cost of the tools / access is possible, whereas trying to fund the tool development on the back of base console sales is not possible.
Historically this has been the PC's "secret" weapon against game consoles for a long time. The cost of building tools was offset by developer fees across a much wider base of developers. "Free" tools were good enough if the hardware was sufficiently over powered, and gamers would spend $3500 on a machine that "normal" people would budget < $1000 for. That makes things flexible.
Then there are the phone games, which like PC games, have the advantage that the phone is useful for other stuff and there are more developers trying to write apps for it.
Ooya's promise is that the existing Android infrastructure / developers will support tool development, and the wide variety of handsets will constrain there efforts to work on systems that are similar to the modest abilities (relative to all android platforms) of the Ooya console.
So to respond to the articles point, the reason you cannot write a game for Xbox using $100 worth of tools is because if Microsoft only got $100 from everyone writing a game for the Xbox you would not have enough money to actually create the tools, much less support them decently. Their best effort at this was XNA but they have since killed that due to lack of adoption, if you are EA you can pay big bills, if you aren't, there are not enough of you to pay any bills.