You're massively downplaying or underestimating the impact of early adopters and word-of-mouth here IMO. The Nielsen report last year showed the #1 reason for people buying a PS4 was superior resolution (albeit it wasn't clear if that was their reason for picking PS4 over XBox One, or just in absolute terms why they switched gen, or both).
Agreed re. WW appeal - we just differ on what impact being "second most powerful, and the most expensive" at launch had. So you think MS just need to drop the XBox One price and let the Neo go off into the distance? That seems unlikely to succeed, to me. Again I think you're downplaying the impact of power and word of mouth.
Look at the reaction Star Fox got recently (at least from me

) - terrible graphics by today's standards. Xbox One would very quickly become the "terrible graphics" box compared to Neo. I'm not sure there's a market for a $150 box to play 900p games at 25 fps in a market where Neo doing 1080p/60. Even if the price is $150 vs. $300 or whatever it ends up being.
You said new hardware doesn't matter and a price cut/games was more important. So if MS just drop the price on the xbox one again with the slim, then Sony doesn't get the 12 months' free reign, by your logic.
Letting gamers know that there is a box 50% more powerful than Neo coming, albeit a way out, may just influence those early adopters/"power" console gamers to hold fire and wait for MS' offering, and it will certainly weaken Sony's messaging around the PS4k, both of which are totally valid business strategies.
edit: According to that B3D post, no NEO this year means ~6 months of gap. Manageable IMO.
Your point about the size of the digital library and investment in the platform is exceptionally well made. It's a huge, huge hurdle for the second-place player. However.. you think MS should just give up and go home? Or their only answer is to keep reducing the Xbox One price until it's given away free with breakfast cereal? Or should they wait until Sony launch the PS5 and then launch their new console?