...found that the materials inside the unit cost Microsoft $470 before assembly. The console sells at retail for $399, meaning a loss of $71 per unit -- and that is just the start.

This would be true is Microsoft were selling every unit directly to the consumer. But alas, those evil bastards at Best Buy want to actually make money by selling things! (The nerve!) So, they get to buy the XBox 360 for roughly half the retail price. Or maybe 60%. Or 40%... I don't have first-hand knowledge of the deals the big box stores have with Microsoft.

The point is: MS is probably losing something closer to $150 or maybe $200 a unit (before you add in the extras).

In order for Tivo to survive against the snarly market forces of TV they would have had to promise even more invasive advertising to replace the ads we skip over. In two years Tivo would (will?) end up looking like a cheesy free web page with banner ads and annoying pop-ups. I'd rather live in the moment and go to the bathroom during ad breaks.