Agreed. Virtualization makes a lot of things possible. MS wants to start transitioning to a cloud based service mid gen and well before the majority of the markets will have the internet infrastructure to support it. Abstracting the hardware will allow for a stable and consistent development and user environment while allowing for the underlying hardware to exist in a state of flux. MS can accommodate users regardless of the bandwidth available to them while moving towards an ecosystem that isn't chained to any particular hardware.
A cloud based service will allow MS to remove barriers that exist between highend gaming and low powered portable devices, which will ultimately dominate the future landscape of personal computing. A ecosystem that's hardware agnostic would be attractive to any company that's more interested in monetizing the software than the hardware, which is what console manufacturer are all about. Providing hardware for gamers is actually a big headache. Transitioning to new generational hardware represents a costly and risky endeavor. It represents a potential point of failure as most established console manufacturers who have been driven out of the market were forced out by the failure of their new hardware to attract the existing userbase of their last console.
If you want to accommodate a mixed hardware environment thats in a perpetual state of change without disrupting basically your entire ecosystem and while mitigating one of the most dangerous time periods for any console manufactuer (transitioning to new hardware), virtualization makes sense.
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