If Microsoft indeed plows all of its consumer video focus into the Xbox as it gets ready to unload Mediaroom to Ericsson, it makes total sense that it will want the next generation of the device to deliver all of cable's premium video services, rather than just a subset of them.
The Verge reports that Microsoft's new console will use an HDMI connection to source cable video services from a set-top and stitch in the new Xbox user interface. Google TV uses a similar HDMI pass-through approach, but it hasn't exactly been a hit with consumers.
While a renewed attempt at this would still seem a bit of a kluge, it would at least erase the need for the user to toggle from one box to another. And it would also represent a big concession if cable ends up letting someone else take control of the UI.
And this sort of work is already underway. Cable's already developing a new line of Ethernet-Digital Transport Adapters (E-DTAs) that would bridge protected digital video over IP, the basic tier anyway, to retail devices such as the new Boxee box (now rebranded as the Boxee Cloud DVR) and hand over the UI duties to the CE guy. But until that E-DTA functionality gets built into a retail device, it's still sort of clunky.
The purported Xbox HDMI integration with a set-top or some sort of lite client box would likewise mean the death of the set-top box remains a long-term fantasy. But a less obtrusive option, I think, will be the "headless" gateway, which could reside in a closet or some other hidden, out-of-the-way location and ship cable's services over the wired and wireless home network to game consoles, tablets, PCs and IP-connected TVs. While that scenario still requires an MSO-supplied device, at least consumers would be saddled with just one, and one that would happen to be capable of shooting video to just about any IP-connected device on the home network.