On the console front, I heard a couple of months ago that Intel had approached MS with regard to Larrabee usage in the next XBox - now what that means I don't know since I didn't speak to a primary source on the matter. But IMO there would be definite benefits for both parties involved. I don't think it's a matter of MS wanting to own or not own the IP so much as simply having a contract in place that doesn't constrain them. To get Larrabee into the box and have Microsoft themselves working on development tools and DirectX-for-Larrabee I think would be a huge win for Intel, to say nothing of the captive developer market they would then have. Enough of a win that I could see Intel offering Larrabee to Microsoft on some extremely favorable terms, and with their node process advantage, potentially at a price lower than what MS would be paying out to TSMC to begin with for an IP they own.
Now all of that said, if ArmchairArchitect says MS has already decided to continue with POWER, there's no reason to doubt that. One would think that the next consoles would already be shaping up afterall, and this whole thing would be a huge gamble for MS. But I just wanted to point out that the traditional reasons why we think MS wouldn't go back to Intel probably don't apply as such here; Intel is the one that would need MS, not the other way around, and a lot has changed in the industry between the launch of XBox 1 and the ramp-up to XBox [720].