This is how I picture how it happened.
Phil Harrison enters MS HQ for the first time.
PH: Right team, give me an update.
Employee: Valve called sir! They've re-requested for Steamworks on the new Xbox
PH: Deny it, block communications with them. What else is happening out there?
E2: EA have a proposition for Mirror's Edge 2 exclusivity sir!
PH: Get it, but damn I want that game on XBLA
E2: Yes sir!
E3: Sir, the rest of Lionhead are threatening to leave, they really really don't want to make Fable: Heroes sir!
PH: Fire them all, cancel PD2 and Banjo Threeie. Rare can make Fable:Heroes now
E3: Right, sir.
E4: Sir, Obsidian's new IP is forecasted to go 10$ over budget?
PH: Cancel it