If I ran Microsoft's Entertainment Division ((Armchair musings))
I really wonder why Microsoft couldn't solve their Xbox quality problems earlier ((and why they ever introduced the Zune - too little too late against the iPod family)). If they did, they could win the war against the PS3 easily after all of Sony's recent missteps. Here comes my simple, 3-step plan for the XBox:
((The 3 steps would have been possible with no additional expenses/costs if the build quality was as high as Nintendo's products))
1. Elite should be a real Elite. Introduce the XBox Elite ((back when it was introduced)) with an HD-DVD drive - while making clear this option is for movies only and not for games. This would be the model to compete with the higher-end PS3.
2. Tweak options/price. Introduce all three XBox models with Wi-Fi from the beginning and drop the entry Core/Arcade price to $ 249 to compete with the Wii head-on ((by Christmas 2007)).
3. Mobile. Introduce a mobile XBox ((leveraging the strong Xbox brand)) instead of the Zune in 2006/2007 - competing with PSP, NDS instead of the iPod.
MS introduced a few good options for Christmas '07 ((eg. the family pack with two games for $ 349 and the new Arcade model replacing the Core model)), but not bold enough in my view given the company's resources.
PS: I don't think somebody from MS ever reads this, but it is sure fun to write it. After all, I predicted Nintendo's comeback back in 2004 and 2005 when nobody gave them much credit any more...