I think you're only partly right. If the hardware wasn't less powerful, it'd be more competitive for the core gamers. However, it'd also have cost more. The problem with Kinect is no-one's shown great use of it save for voice input and a couple of motion games. The potential as a wide-audience device (exercise, education, etc.) is IMO phenomenal, but MS ditched that audience to chase after the established core gamer audience, perhaps as the only demographic they were hearing from and who would support a console (how many educational companies would start making Kinect-driving learning aids?), and in the core gamer market, Kinect didn't have any decent backing. So Kinect as an idea, at least as MS realised it, was flawed and dragged the console, as a simple games machine for the core gamer, down.