It's surprising how quick people are to write off the big N. Despite everybody calling Nintendo's Gamecube a non-factor, not catering to the mature audiences, having huge droughts in quality games, etc, they are still essentially even with Microsoft.
To me, Microsoft is going to have the most difficult path next generation for several reasons. Of course, these reasons are based on current speculation, but hey that's all we've got.
1) They will not have the technology advantage. By far, this was their biggest key this generation. Without it, and if fact, potentially being in 3rd place in the horsepower war will make it difficult to maintain their current fans who clearly want the most powerful system.
2) They will come out first and they will have to face the hype of the other two systems much like the dreamcast. It's very difficult to fight a ghost and people like to wait for more options to show up before they make the "big" decision.
3) Sony will have an Xbox Live "like" service from day 1. Again, it may not be as advanced as Microsoft's, but it will again counter one of their key advantages.
4) Microsoft, as far as consumers go, by far has the weakest 1st party lineup. For casuals you've got Halo and that's it. RSC, PGR, MechAssault, etc may be great games, but as far as sales go, they haven't become huge franchises like Mario, Zelda, Pokemon, Gran Turismo, Twisted Metal, J&D, R&C, SOCOM,etc.
5) Microsoft failed to make an inroads into Japan with the exception of Tecmo. While Japan may not be the "end all be all" of gaming anymore, you cannot simply have a 0% contribution of games like Final Fantasy, Metal Gear Solid, Resident Evil, Tekken, etc.
Clearly, Nintendo has not executed well by everyone's admission. Similarly, Microsoft has done many things right and still Nintendo is even. I expect Nintendo to launch the Gamecube successor with a much, much stronger lineup and reverse their slide. They are also catering to a substantial market that the other guys aren't. While the market continues to skew older, kids still make a large percentage of VG sales.