Traditionally, MS has just hired this group up: they had Jordan Weissman, Elan Lee, and Rob Rinard working on games back in the day. Those folks left long ago.
Thing is, traditionally, you make money from consoles on games, not on consoles. In fact, you sell the consoles at a loss until late in the cycle. That's changed now that youn can make a chunk on app-store sales. Every game sold in MS' online Arcade is giving MS a cut of around 25%, and these games sell much faster, more continually, and require no publisher BS or retail deals.
The industry has changed, and MS' internal studios weren't exactly producing gold. Best thing they'd done in a long time was 1 versus 100, which was murdered likely because it didn't make any money.