Really good post - should be a mandatory read for anybody who brings up the "but competition is good" argument.
It's logical, however his conclusion about Microsoft is wrong.
Microsoft is competing against the hypothetical (and I'd argue real) competition from Apple, Google, and Amazon for all the devices and services in your everyday life, which encompasses work and play. Azure, Office, Outlook.com, OneDrive, Windows, Xbox (games, music, video), Surface, Bing, IE, Windows Phone; Gmail, Google Play, Google Drive, Chrome, Google.com, Google Glass; iOS, iCloud, iTunes, iWork, Safari, iPhone, Apple TV. They're each developing wearable technologies.
Xbox is their entertainment arm, to fight Google Play and iTunes, and arguably to go up against their cloud offerings and digital store fronts with the inevitable shift to completely digital entertainment. It's why Microsoft has been branding the Xbox 360 and One as entertainment devices. It's why they consolidated their TV, movie, music, and games initiatives all under Xbox (think back to Mediacenter, Mediaroom, Zune, Kin, GFWL, etc.). It's why Xbox is not just in the living room, but also available on any Windows 8 device. It's why they now have studios focused on original TV programs (LA Studio), others focused on cross-device games (Lift London), and pretty much all their first party studios with job postings that include cross-device experience (go look up BlackTusk, Rare, Lionhead, and 343).
Anyone suggesting MS will ditch the Xbox division is suggesting they are going to give Apple and Google competitive advantages in the consumer market. You've either got tunnel vision and can't see the landscape each of those companies are fighting on, or you're just naive.
There was already a shift in the mobile market, from dedicated gaming devices to multi-purpose devices (smartphones and tablets). The same thing will happen in the living room, away from dedicated gaming consoles and cable boxes towards multi-purpose devices. It's a matter of when, not if.