VentureBeat's Dean Takahashi (author of The Xbox 360 Uncloaked: The Real Story Behind Microsoft’s Next-Generation Video Game Console) tells the behind-the-scenes story of a now-familiar tale of woe:

This is the unauthorized tale of how Microsoft lost its chance to become the leader in the biggest market it has attacked beyond its twin monopolies in Office and Windows software. Rival game console maker Nintendo out-thought the larger players Microsoft and Sony by designing the Wii game console with a clever, intuitive game controller. Even so, Microsoft could have captured more gamers during this product generation, yet the Red Ring Of Death (RROD) problem held it back. The Xbox 360’s defect problem will go down as one of the worst snafus in consumer electronics history.

Microsoft knew it had flawed machines, but it did not delay its launch because it believed the quality problems would subside over time. With each new machine, the company figured it would ride the "learning curve,' or continuously improve its production. Even though Microsoft’s leaders knew their quality wasn’t top notch, they did not ensure that resources were in place to handle returns and quickly debug bad consoles. There were plenty of warning signs, but the company chose to ignore them. The different parts of the business weren't aligned.

Microsoft's strategy depended on beating its rivals to market. It couldn’t afford to stop and delay the launch in order to solve its quality problems, or so upper management believed. What Microsoft’s leaders didn't realize was that getting to market first with a flawed machine would only win them a battle; and it risked the loss of the war.

The quality problem negated much of the advantage of going first, and it has delayed the company’s plan to aggressively market the console and slash its prices. And the company believes it will sell more boxes than Sony will ... [but] the future profits that the company once hoped for are now likely to wind up in Nintendo’s pockets.

I asked Microsoft to confirm or deny 35 different facts contained in this story. Instead, I received a formal statement from a Microsoft spokesperson, saying the company had already acknowledged an "unacceptable number of repairs' to Xbox 360 consoles and responded to the hardware failures with a free replacement program. The statement also said, "This topic has already been covered extensively in the media. This new story repeats old information, and contains rumors and innuendo from anonymous sources, attempting to create a new sensational angle, and is highly irresponsible."

Sorry, but I'm calling bull@#$% on that one. The only thing "highly irresponsible" here is that Microsoft knowingly foisted buggy hardware on its users for years, now believes that "gamers have largely forgiven the company," and is actively seeking to stifle the press from telling an important and accurate story. This is disgusting and proof that Bad Microsoft still exists in parts of the company.

Thanks Matt S.