For all MS's failings, one thing they excel at (sorry, no pun intended) is persistence. If they think something is important, they'll keep trying ... and trying ... and trying ... and eventually they usually turn out something pretty good. They did it, for example, in the browser wars (IE4,5,6 were substantially better browsers than their Netscape equivalents).
Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.
You forgot Vista, although Microsoft relatively quickly turned it around with Windows 7, which is selling at the fastest rate in the history of operating systems.
I think Windows 7 is pretty good, but I think the record adoption rate of it has quite a bit to do with how bad Vista was (and its terrible reputation); it created a void that needed to be filled, by anything that wasn't as terrible as Vista. Remember, Windows XP is really old.
Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.