The DRM was definitely part of it, but the real thing that did in the XB1 at release was its lack of power and price. It was simply a nonstarter to come out with a less powerful more expensive console in an age where exclusives have much less influence due to third party games becoming more popular.
Such a product would hardly be DOA. I picture it coming out around back-to-school time and being offered up as a console/PC hybrid. It could be packaged with an Office 365 subscription that lasts for the school year to sweeten the pot. If it only allowed app store apps to be installed, such a product could be sold at or below cost because MS would make up sales through the app store.
Even without that PC/console hybrid idea, an improved version of the XB1 console would still sell extremely well. Remember that 360 came out only 4 years after the original Xbox was released. A 2017 release would be 4 years after the release of the XB1. For that reason alone I'm pretty confident it'll happen by 2017. I'm pushing that up next year based on a hunch and the fact that MS will want to get a jump on Sony and head off the good press it will get from PlayStation VR.
So a PC basically with an equivalent of a Steam box's Big Picture Mode? Or like that one Alienware gaming PC box?
I guess it could work. Although that's going to be a very interesting timeline w/ the NX. If it (the NX) turns out to be very powerful compared to PS4 and XBO, and releases a year before (I'm definitely thinking it comes out in 2016), that could make what you're proposing redundant to early adopters if the NX turns out to appeal to them, and being a better value proposition.
In that caes the XBO would need to be quite more powerful than even the NX, and releasing at that point, might as well be an Xbox Two, which I guess could be a lot closer to what you're proposing given that the current gen systems are already so much like PCs.
Why are people talking about userbase resets and such? You can keep your ps4 and it will play all ps4 games just fine. The "new ps4" will simply play some of them a bit better. It's entirely optional. There is no userbase split. You're just simply using whatever ps4 you happen to own as access to Sony's services and games
The problem is the hardware will be worth nothing if it's simply there; Sony will need to justify its existence with quality games that actually take fuller advantage of the extra hardware. So essentially, the games will need to be scalable.
Basically, if it's the equivalent of what the PS2 did with most PS1 games, there's no need to really go for it IMHO.