I've always liked Xbone. It's silly and irreverent, which is cool. It's not like M$, which sounds like some overly earnest 15-year-old anti-capitalist crap. And no-one would say "Em-dollar".
It's more like CODBLOPS, which gets around the awkwardness of pronouncing the full title while also rejoicing in the silly sound.
XB1 is confusing, since there is already an XBox 1 and MS doesn't use a numerical 1 in any of its branding.
MS specifically used "One" instead of "1" because "one" implies "one box to rule the living room" whereas the numerical 1 does not.
XBO is kinda okay, but has 2 problems:
no one uses O as an abbreviation for One
it still causes confusion with the Original Xbox, which has a better claim for using O in its acronym
It sounds like XBox or it's users have a problem with body odour
Seriously, XBO implies "XBox stinks", and does it way more directly than Xbone implies "yeah, because bone sounds a bit like mean boner, which is slang for a penile erection, and is also archaic slang for a silly mistake".
Mircosoft would probably want us to use the abbreviation XBone, pronounced "ECKS-BEE-WON", which would be cool except:
ECKS-BONE uses fewer syllables, which is kinda the whole point of abbreviations
It's good to have a name that avoids confusion with the original xbox
To be honest, the PS4 sounds pretty souless, dull and corporate in comparison to the dynamic, masculine and forceful attitude implied by the Xbone.
I think people are overstating Nelson's offence to Xbone though. I assume he thinks it's a bit juvenille but it's about to throw some Hitler Downfall shit-fit, "Steiner... Steiner reports that people are calling it the Xbone on Neogaf...", "Enough! if you've ever used the word Xbone, leave the Redmond bunker now!"