And this isn't a technical problem; it's a process and culture problem. MS almost certainly has the technical and financial resources to have prevented this. The fact that they didn't points to an utterly dysfunctional company. Getting out of a market that they're rather obviously too hidebound or screwed up to compete in, is definitely a solution.
Sit back and wait for the real story to unfold, then make an analysis and contribute something. Simply bursting out with "Fire them all!" and the first report of a problem is childish at best.
Microsoft, for all their power and ability, are not remotely above mistakes. They also do a pretty decent job of learning from them. I don't know of a home that doesn't have an Xbox 360 in it, or a home that doesn't have some installation of Windows in it.
Sure, it takes them awhile to hit their stride, but the worst thing anybody can do is discount them as a strong competitor, in any market they're in.
Current sales figures are roughly 50m worldwide sales for the 360, 48m worldwide for the PS3 (having been available for a year less), 85m sales for the Wii. For reference worldwide sales for the PS2 are currently 150m (and still selling).
All figures for Dec 2010 / Jan 2011. Worth noting that if those figures don't tally with what you see around you, the Xbox360 is way bigger than the PS3 in the USA (18m to 10m I think), the PS3 either equals or beats it in all other markets (notably Japan and Europe).
So yes it's "one of the top selling consoles" and 50m units isn't exactly chopped liver, but it's pretty much third equal in the market. Also worth noting that the whole Xbox division has lost massive amounts over all time (though it's now profitable, it's never recouped the original investment).
But I would agree with the point that while they take time to hit their stride, they do get there and I think Kinnect is a good example of the fact that they're now executing pretty well in this space and indeed innovating which isn't usually a word you'd associate with Microsoft.
[1] As supporting data, I point to the other HN front page thread that points out the exception that proves the rule: Windows 7 has SP1 and no one cares.