It would be foolish for Microsoft to retire. They spent billions on the original Xbox just to get a foothold in the market and did a great job and probably have just started turning a profit on their initial investment in the past few years. To think they would just end this long term investment would be crazy. Their reveal was stupid plain and simple. Netflix and TV on your console is a nice bonus but should not be the focus or one of the only things talked about during the system's reveal.
Im sure that the machine will be capable of a lot. I wasted my time watching that conference and was given no idea of what kind of games I will see on it, except for Sports games and Call of Duty (which every system has). I think E3 will be the determining factor for the system, if it has great games and is a gaming machine I'm all in. If it only has great TV exclusives and Cable support, I'm not wasting my money.
The only thing for them to rethink is how they market the machine or portray it to the public. Their reveal made it clear that they are trying to market it as a multimedia device, not a game system. This is a big mistake as Computers, Phones, Tablets, Laptops, and even previous generation game consoles are all multimedia devices. People aren't going to pay 400-500 dollars (my estimate) for a machine that does something that many other devices are capable of. That small market is already filled by Roku box anyways. 10 years from now those services wont work anymore and those will be useless assets.
If I was them I would market my device as a gaming system that is great for everyone whether they like Call of Duty, RPGs, Sports Games, Platformers, Party Games, etc. They should try and show people why their video game system is better than the others at being a video game device.