I said it elsewhere (and am paraphrasing from a Jimquisition episode if I'm being totally honest), but Microsoft screwed up by not focusing on the games first and foremost. By talking up the All in One TV/internet/media features they weren't trying to compete with just Sony and Nintendo, but with the hundred different devices that provide similar services in the living room including many new TVs. I don't think they can win that contest, especially given how relatively cheap and compact a lot of those devices are and how likely the well-off gadget-loving type that would buy a game console brand new will probably already own as many of the aforementioned devices as they need.
Microsoft have a chance come E3 to make it up by concentrating entirely on the games instead, since they've all but said everything they needed to about everything else relating to the XOne, but I think that reveal shattered any illusions people had about MS knowing what the hell they were doing and it really doesn't help their case that almost every horror story about the user experience appears to be true, whether it's because it's actually true or because they're being too ambiguous about it. The Xone isn't dead on arrival, far from it, but it's discouraging how badly that initial conference was botched and it does not bode well for future presentations of the thing.
On a final note the dog thing was just ridiculous, but that's more Activision's fault than Microsoft's, who may have rightfully believed that a new Call of Duty was one game announcement that could potentially excite a lot of people and didn't look too closely at what was actually in the presentation beforehand. Adding a dog is something you do to the fifth consecutive game in a single generation, where you don't have a huge leap in technology from which to draw any real innovations. I guess it's no surprise that CoD continues to be creatively bankrupt, but the desperation is tangible.