If I were MS (or Sony), I'd consider designing a tablet/mobile with a dual-stick container to convert it to a gamepad. You'd invite controller synergy as an option, promoting your tablet/phone to console owners over rivals and offering a higher-tier gamer options for those willing to spend...$600+ on a console+tablet controller option. Also sell a bundle. For MS, the tablet would run Windows games (whatever their store/apps are called these days) and SmartGlass. For Sony, it'd be an Android device running PSM with connection protocols, meaning owners of existing compatible tablets can be attracted to cross-device compatibility between console and tablet with the incentive to upgrade to a Sony device later for a more ergonomic interface.
Tablet business is a risk, what with inventory management and such.
I don't know about putting physical controls on a tablet-sized form factor. On smart phones yes (unless it's one of the ridiculous large phones) because you can have something similar in footprint to console controllers.
But rather than build a whole device around physical controls, just make physical controls which would pair with the popular devices now. For phones, make a shell that you can drop your phone into and then use that to control the console.
Of course, MS and Sony both want to sell mobile devices on their own. So they will probably try to make game-oriented devices but that's a niche market.
I don't think the problem with traditional shrink wrap games and mobile devices is the limited touch controls. The bigger problem is that mobile device owners don't want to pay $40, 50 or $60 for games.
The number of people who are willing is in danger of shrinking to a niche.
So the economics don't support high-production costs games. While core gamers will say mobile games are shallow, aren't as immersive, etc., a lot of people who game on mobile devices will say, that's fine, I only have time to play for a few minutes at a time.
Increasingly, there's migration from the former to the latter.
