Microsoft appears to be eyeing a page in Nintendo's playbook, whose insanely successful Wii console almost devalued technological horsepower in favor of innovative controls and mass-market appeal. It’s evident that the next generation of consoles will have to do more than simply push pixels. Of course, Bach also notes that the current global economic crisis would make it all the more difficult to convince users to upgrade their game consoles, especially with the quality of graphics on today's consoles.
Part of the decision could also be attributed to the explosion of Xbox Live, the general trend toward multiplayer online games and digital distribution on the rise. But most importantly, Microsoft seems to have finally gotten its gaming business to the point where it is actually turning a profit, so to rush the beginning of the next cycle would certainly make no sense.