It's not unsurmontable obviously. But it needs years of development and a clear vision. Both of which are missing at MS currently. Even Nvidia with all their will, unlimited GPU power available and money needed years of development before getting DLSS where it is now.
And don't forget that technically the first company to litteraly kickstart the reconstruction endeaver 2 years before Nvidia was... Sony in 2016 with dedicated hardware and custom techniques on PS4 Pro. And with the few silicon dedicated on their GPU they end result was and still is very good. I mean some of those games running on PS5 are the ones that have the best IQ (and better perceived resolution/performance), far better than this FSR2 trash.
Reconstruction as we know it today... does go a long way back. It's been an evolution. And yes, you can say it started with Sony and checkerboard rendering. With software-based reconstruction spearheaded by Guerilla games and funny enough... Ubisoft. But yes, Sony was first to actually put in dedicated hardware to accelerate it in the PS4 Pro.
Having said all that, as it stands today... ML-based reconstruction (DLSS, XeSS and soon to be PSSR) is now demystified. Its basically a matrix operation run on matrix hardware. Thats it. It's why Intel could spit out a reconstruction solution that rivaled DLSS and is better than anything FSR can manage... in their first attempt. Everything that makes DLSS great, can be done by anyone as long as they have hardware with ML units.
Once the hardware is there, it's a simple case of training their algorithm. And the crazy thing is that you can even use Nvidia hardware to train an algorithm that would run on an AMD-based GPU. The even crazier thing, is that said alogarithim has/could have been being trained for the last 4 years. Even when the people training do not yet have the hardware to actually run their algorithm. Its just matrix code. No special or secret sauce there. At the end of the day, you are or will only be limited by how many TOPS (the AI buzzword to replace the raster buzzword of TF) your processor can handle. And even that has become standardized with how much you actually need to do reconstruction and say frame gen in under 2ms.
But we are not even talking about the most important thing here... that is AMD. Make no mistake, the reason Nvidia has looked a world apart is not because they are sitting on some sort of mystical tech... its all down to AMDs stubbornness (or stupidity, take your pick) of not putting ML-based hardware in their GPUs and actually releasing a ML based reconstruction solution. You have to understand that what AMD has managed thus far with FSR, is actually harder to pull off on a purely software basis. Thats because their algorithm is man-made.
Once the PS5pro hits, all that changes. Every AMD GPU after that would come with ML-based hardware that matches or exceeds whatever is in the PS5pro. AMD will at that point, no doubt have an ML-based reconstruction solution to match or exceed whatever the PSSR is... they probably call it FXR. And even if MS doesn't build out their own, nothing stops them from just using AMDs own... especially if their next GPU is also going to be from AMD. Hell,,, MS could even have an ML-based reconstruction algorithm trained and ready to go right now. Because remember, its now about those TOPs... you can literally have 3 different ML-based reconstruction solutions running on the same hardware. Or a situation where an Nvidia GPU (with more TOPs) can run PSSR better than an PS5pro can run it.
But where this gets interesting, is if MS is really going the route of just not operating within the pricing confines of your typical console, and instead making a premium "console" that retails for $800+... nothing stops them from putting in an Nvidia GPU in there. This is something that MS can and should probably do, because they have to have figured out by now that they will never win sony if they have the exact same priced box. They might as well double down on the power and premiumness of their console, except they will sell as a niche console product, but will always be known as having the best console gaming hardware or experience.
The point is, within a 3 year window, everyone is gonna have ML-based hardware, and everyone is going to be able to do it right.
Apologies for the wall of text.