Nintendo Drops GameCube Price to $150
MS is no longer interested in selling the XBox. They're interested in selling the monthly online service that will soon be available for it, and they continue to be interested in selling software.
But unlike the IE-NS analogy where giving a binary application away for free doesn't increase per copy cost. The XBox is a tangible product that costs $$ to produce. Once IE reached a certain code base the cost drops Significantly to sustain. Giving away code is as easy as the copy command. Giving away an XBox is not. Even Microsoft with their Billions cannot afford the kind of drain giving away hardware would entail. Unless of course they start charging for IE.
They also continue to be interested in establishing a foothold in your living room so that they can blend your television (your eyes) into the .NET communication infrastructure.
The money to be earned from games will be dwarfed by the money to be gained by establishing a monopolistic control over real-time communications, which would seem to be Microsoft's current goal.