Has Microsoft Lost its Mojo?

In the pursuit to topple the Playstation 3, Microsoft's Xbox 360 seemed to be on the right course.  A full one year head start combined with some killer games lifted the Xbox 360 quickly into the #1 next generation console slot.  Gears of War proved to be the 2006 holiday hit that hardcore gamers craved, but since then a string of bad news have stung the software giant from Redmond. 

The Big Three include:

• Xbox 360 Hardware Failures
  • A chorus of gamer polls and angry message board posts came to a head when one week prior to E3, Microsoft admitted that the Xbox 360 hardware was failing at unacceptable levels and announced a 3 year warranty extension for the dreaded 3 red lights hardware message.  This news alone could be the tipping point that causes Microsoft to lose it's lead against Sony this generation.  It appears that Microsoft's experience in software and services (not hardware) is clearly showing, compared to both Sony and Nintendo.
• E3 2007
  • Good games releasing this year were shown but the Resident Evil 5 re-announcement, Scene-it trivia game, and special edition Halo 3 Console announcements fell flat.  No price cut to match Sony's (albeit a limited $100 60GB version inventory move) was announced.
• Peter Moore bolts to head up the EA Sports division
  • The figure head that Xbox 360 fan boys and Xbox division employees loved to rally around has left the building.  Yes, the man with that lead the Sega Dreamcast to a valiant fight against Sony has decided to move on and remove a few tattoos.  Interestingly enough, Peter worked directly with Visual Concepts (as Sega owned them at the time), and now will directly compete against their efforts at EA Sports.

Casual Gamer Missteps:

Microsoft was the first to digitally distribute casual games via a game console with Xbox LIVE Arcade.  The initial batch of Xbox 360's even bundled a simple remote with game play buttons (think Wii Remote without motion) that seemed to signal  serious thought and investment was being put towards the casual games market.  Unfortunately, the casual gamer doesn't typically have a networked home (at this point), and they don't typically spring for a $399 game console during the early adopter phase of a console's lifecycle.  What about the $299 Core model you say?  Well, remember you can't get online or save any of these casual games without a memory card or hard drive.  Other problems with Xbox LIVE Arcade included the initial menu system, which was a step above using DOS to find things, and is still a very clunky interface.  Casual gamers are apparently gravitating toward a simpler approach with the $250 Nintendo Wii.  As everyone knows, the Wii has innovative casual games (namely Wii Sports) that do not require an internet connection.  It has an innovative yet simple remote, and is in the impulse buy price range of $250 (if you can find one).  

Certainly Sony has taken it's lumps this generation, but with an assault by Sony for the hard core gamers and Nintendo for casual and younger gamers, will Microsoft be able to regain its 'mojo' and compete for the number one slot this generation?