No BC plus early launch = DOOMED for MS.
Sony will have BC, and LOTS of people will wait for the PS3 just based off of name recognition and exclusive titles that they know will be coming out on PS3 (GTA, GT, MGS, etc). If Xenon doesn't have Halo3 on or near launch they are fooked (and considering that H2 is coming out this year, how can Bungie get H3 out within a year? Hell within 2 years without it being a rehash?)...they can't ride off their name like Sony did cause they DON'T have the brand power Sony has. Plus, with no BC, Xenon will be judged based off it's early software and as I said, without Halo3 their line-up will be pretty shitty/a retread of stuff on PS2/XBox. It's going to be like Dreamcast+ for third-parties...devs won't commit to the Xenon, instead giving it token exclusives and enhaced ports like the DC recieved. They'll wait it out till the PS3 comes around to take the full leap, the Xenon will be a stepping stone, a place to test the waters of the next gen before diving in. And that will have a snowball effect on sales of the console. As a result, Xenon's one year headstart crumbles into nothing.
IMO,the best thing MS can do is launch at the same time as Sony in 2006 NA with a superior line-up (w/ Halo3 if they can). As of right now, they don't have the brand power to launch first and build momentum/userbase quickly like Sony did with the PS2. Factor in no BC and the feact that they won't have BR (which seems more and more likely to be the next standard) and MS has a huge uphill battle ahead of them, even without the competition of PS3. I'm assuming that MS think that doing what Sony did last gen will work for them (launch first, doesn't matter if the line-up isn't that hot) and winning over the hearts and minds of gamers...newsflash MS: YOU ARE NOT SONY, yet. And considering how they're planning to handle things, they never will be, the potential is there, but they're overstepping thier bounds way too early IMO. They need to come out with a bang in 2006, head to head with Sony (constantly showing why Xenon is the best next-gen system cause of *insert features/games here*). Rather than enter the market with a whimper in 2005 and slug along until the real competition arrives.