A few of your points might be valid, but why is it so hard to admit that Japanese gamers didn't really give MS a fair shake with the 360. The size wasn't that much bigger than the PS3 if bigger at all. The DVR boxes most cable companies in Japan offer are as large, and most stand alone blu-ray players are in the same size range so the Japanese themselves aren't exactly putting compact little electronic devices into homes.
The PS3 wasn't really successful in Japan until the slim came out, at which point it really began to pick up. And while receiver boxes are quite large, that makes the PS3 more appealing since you can replace it entirely with a Torne, if it works the way I understand it.
Japanese gamers gave it a fair shake - a not insignificant amount of hardcore gamers recognize it as a superior gaming machine. But it didn't have GT5 or MGS which mattered, and FF13 was originally exclusive as well.
Sony always had an advantage due to the trust in that brand in Japan. Sony products are even more ubiquitous than in the USA, and they also are responsible for the much beloved PSP. As an electronics company, Sony has that edge over MS. But... Racism? Xenophobia? Loyalty to your own kind? No. Just, no.
So the larger PS3 that had no RPGs or Dating sims was more appealing?
Pretty sure this particular case was an American thing.
Microsoft couldn't have actually done too much more than they did.
I don't know what to say to this. First of all, dating sims and RPGs unless their name includes Final and Fantasy are not what sell systems in Japan. At least not in large numbers. Seriously you have to be joking about the "dating sims" thing.
And again, there were tons of things Microsoft
could have done to make it more appealing in Japan, but then they'd be sacrificing their brand image that they're working off of in other countries and probably didn't think it was worth it.
They offered HD graphics at a time when people didn't care about it. They offered online play (that isn't even free), again to people who largely aren't interested. The system is noisy and bulky and doesn't fit with Japanese aesthetics that are largely still heavily planted in modernist architecture and forms. The way they presented the console is all wrong and backward from a Japanese perspective.
"I like it but they don't, it must be xenophobia/racism" is lazy defeatism, IMO.