They've only got themselves to blame.
They sat on their arses getting fat off of the PS2 and GT3 et al, starving a software industry of a next gen platform so desperately needed.
So MS nip round the flank and seriously get the jump on them with the 360.
Regardless of which is technically superior, the 360 will always 'win' the battle for numbers as it's out there, just like when the PS2 owned everything as everyone had one. So the strength of exclusivity for games like GTA and GT3 that was awarded to Sony, now sits with MS (or a delayed release at least).
I used to have a PS2 and GT3. Now have a 360 Elite complete with seat + wheel and Forza 3.
I'm the market me.