This.
I don't know how much clearer Microsoft has to be. If everything is an Xbox, it needs to run Xbox games.
People don't want to believe it, so they won't.
The interesting thing about all of this is there really isn't much value in Xbox virtualization on PC. These legacy games themselves inherently aren't going to sell hardware, we know that based on the Xbox One and the worse-performing Xbox Series.
So what is this about then? It's about converting the Xbox ecosystem itself to PC. How do you convince Xbox fans to keep using GamePass without new console hardware? How do you keep them buying peripherals? The answer is you need to migrate over the core ecosystem as much as possible.
Remember, that Xbox has been Day 1 PC for years now. All Xbox Series and many Xbox One games are already on PC. This is more than just porting games like Halo 5 to PC. You also want to be able to bring across save-game progression and have an answer for 3rd party games, but from a licensing standpoint, Microsoft has Activision, Xbox, and Zenimax... but being able to say a large percentage of your library will come forward with saves is what they're looking to accomplish here. Especially when you're talking about multiple devices, i.e. PC handhelds, Cloud, and maybe even mobile.
The bigger question really is timing. They have a small window (assuming they have a window at all) to make this transition. The longer they wait the more Xbox One users and even Xbox Series users will move to PlayStation to play GTA6 and once that happens it'll be difficult to get them back.
I think the way gaming works today makes this project *somewhat* foolhardy. So much of the industry is live service now, these games are already cross-platform and cross-progression. Then so much of the industry is annual titles or semi annual or otherwise iterative titles that people don't tend to revisit like who is out there loading up FIFA 21 or Madden 16? I don't hear anyone pining for GT Sport instead of just playing GT7 and GT6 isn't getting anyone to buy new hardware.
So, yeah, I don't think this is really about hardware at all. I think inherently Microsoft understands that they're at a massive disadvantage to Steam and are looking for whatever angle they can get, but unless they're willing to exclude their games from Steam, that disadvantage is always going to exist. Microsoft could have a successful launcher surrounded by Minecraft, CoD, Diablo, WoW, Halo, Gears, Fable, Fallout, Elder Scrolls, Overwatch e.t.c. Microsoft should be pulling all of this stuff off of Steam, but they won't because they want the short term profit.