The most important question is, which Microsoft model will this emulate, Zune or Xbox?
Zune -- MSFT enters an existing market with a device that is putatively well-speced and well-priced. But MSFT fails to get the details right, and has a crappy advertising campaign. MSFT sinks tons of money into it and eventually gives up.
Xbox -- MSFT enters an existing market with a device that is putatively well-speced and well-priced. But MSFT fails to get the details right, and has a crappy advertising campaign. MSFT sinks tons of money into it and eventually outspends the competitors and fixes enough hardware and software issues that it comes to dominate the market.
With Zune, MSFT's front-running competitor was Apple. With Xbox, it was Sony and Nintendo. Now, it's Apple again. This does not bode well for MSFT's ability to win through.
I only see two ways that MSFT can pull through this: (1) they can leverage the Office and desktop monopolies to go after the business space; (2) their sheer desperation to keep from becoming irrelevant will force them to keep spending until they figure it out. With Zune, failure was on the table -- music players did not directly threaten their core Windows business. The iPad and Apple ecosystem, OTOH, now are threatening their core Windows business.