They didn't lose money on the 360 (this past quarter anyway, clearly they did for a first few years of the device's life), they lost it on winding down the remnants of Zune and ramping up Windows Phone.

Also, while the 360 is still king of the consoles in terms of overall sales and is profitable, it is selling less quickly than before because this console generation is past its peak and is riding the downward slope on new units sold until the next hardware refreshes appear.

So the 360 is still a net positive, but less positive than recent past quarters and not positive enough to offset other losses.

Entertainment/Devices is more then just Xbox. Skype acquisition could be in there, warrenty costs, and windows mobile.

I doubt they are loosing money on "Xbox" depending on how you define that bubble.

Consoles are sold at a loss, so that more people will buy the console (licensing fees are proportional to the size of the audience/consumer base). Even the PS3 when it first came out at $600 was a loss leader; if i'm remembering right for the PS3, the cost of the hardware was something close to $1000.

Companies expect to make that money back through 1st party game sales and licensing fees from 3rd party developers for access to the sdk.

As I understand it, the warranty costs associated with all of those RRoDs ran into ten figures. It really set them back on the road to profitability.

They only recently started making money with every sale of a Xbox 360. Typically console makers sell their hardware at a loss to get it into as many hands as possible and then make money with software.

That is why Nintendo is taking such a bath this generation. People buy a Wii for the novelty and only get one or two games where Microsoft and Sony are much more about the games they have on their consoles.