But why not first consider the franchises that are more asked for, like Banjo, Conker or Perfect Dark? I can see a point against Perfect Dark (which actually is the only Rare franchise outside of Killer Instinct that got a proper sequel under MS), being quite redundant next to Halo and Gears (also I wouldn't be too happy about that either), but wouldn't those franchises be much better choices than Battletoads?
And if we are talking unique gameplay potential, they would proably have to take Blast Corps into account.
I do agree with you and it frustrates me endlessly how poorly Rare have done since the takeover. In regards to Conker, Banjo and PD:
Well Rare have openly admitted that Conker was lightning in a bottle and was very much based around the humour they had at the time going as far as to say they don't think they could make it work now.
Banjo would be successful commercially, Nuts & Bolts sold quite well despite it's flaws and Yooka Laylee did well commercially on a Kickstarter of £2,000,000. A small team with a budget of $3,000,000 for Banjo Threeie would break even with sales of 100,000 at $30.
Perfect Dark would need to be completely rebooted in my opinion, a FPS in that style wouldn't be enough in the current market and it would be drowned by other shooters.
Microsoft own so many IPs that are just being forgotten. Not every title needs to be AAA, cultivate smaller teams with budgets of $1,000,000 - $5,000,000 and let them take a shot at rebooting IPs that don't need to sell millions to return the investment.