Basically they're trying to move in the direction of creating an "entertainment" system because of the "magic of cloud". Physical "games" are no longer necessary; honestly they've been obsolete for PC gamers for a while, and with the advent of the XBOX LIVE arcade, we're already at that point with console gaming.
The biggest complaint I want to launch at microsoft is the fact that you're unable to play games unless you're hooked up on Live (aside from a 1 hour stretch [who knows, maybe that's just there so you can sign up for live]).
You need permission from Papa Microsoft if you want to play, period. And if you're unable to ask permission because you live in the internet deprived boonies, "Fuck you".
Even when the Kinect Portion of the console is off, it listens for the command "Xbox On"... so it's not really off. Ie. it's just fucking creepy.
PC gaming has always proven superior, and if you disagree, you're probably just enamored with an exclusive title from a console. That considered, this shouldn't be that big of a controversy, but it remains so because fanboys are already hooked on flagship titles from years ago. And even though the ability to play those will be cropped by the lack of backwards compatibility, they're going to come for more because they're unwise consumers who want sequels. That's what Sony, Nintendo, and in particular, Microsoft is banking on - and they want to make it seem like that exclusivity is just as all inclusive as an entertainment system, and it's going to hook a lot of hardcore gamers too.
Yeah, yeah, I know the potential to explore the performance of a console lies in how a developer produces a game, but even still...