This isn't a fair analysis. XBOX is probably one of the only groups that is moving in a positive direction at Microsoft. Yes, they've lost billions, but Microsoft expected that going in. The billions they've spent over the last few years is a small price to pay for making Windows technology the center of the home entertainment experience as well as owning a significant content pipeline into the living room.

However, despite my confidence in XBOX, Microsoft is still going to experience a lot of bleeding because XBOX at its best isn't enough to cover for the fact that the Desktop and Windows OS are becoming irrelevant.

Its a strange irony that Microsoft's best products (Xbox, Natural Keyboards) are hardware.

True to a certain extent, but I would say that the XBOX also features pretty nifty software. Its Dashboard and Blade-UI make for what is arguably the best entertainment computer experience. Oh, and don't forget XBOX Live.

It's not unusual for companies to sell game consoles at a large loss in hopes of increasing market share and making the money back on licensing. Pretty much everyone who isn't Nintnedo seems to do it that way.

I also think it helps to note that Microsoft is now breaking even on XBOX console hardware (this may have changed given the announcement of the new Elite model). Barely, but still a good sign that they knew what they were doing when they released before Sony without a proprietary video disc player.