My point was that iPod isn't a threat to Microsoft's attempted takeover of the living room. A portable media player is by definition not a living room threat, much like how the Game Boy Advance wasn't a threat to the PS2.
If I were a Microsoft shareholder hearing about the Zune, created and marketed by the same people who created the money-bleeding Xbox division, I'd give up all hope and move on.
MS leaves no threat unturned.
Maybe you don't see what is happening as well as MS. The wildly popular iPod is connected to the broadly successful iTunes store, which used to sell just music, then TV shows, now movies. Then Apple announces "iTV" so that the iPod, the computer, iTunes, everything bought at the iTunes store, and every iPod owner's home entertainment system can be one big happy family. This is what was meant by the "iPod ecology".
If every happy iPod owner were to decide they wanted to be a part of this ecology just because of the iPod factor, then that would at the very least put a big dent in MS's plans for a digital home entertainment monopoly, and therefore dull the edge of every other MS product somehow connected to home entertainment.
I didn't know X-Box was bleeding money, but from the MS empire philosophy, they have no choice. They can't leave any potentially computer-related product alone that might make money for them or their competition. I assume this is what their shareholders expect.