The 360 landed with extremely lucky timing for Microsoft. And luck competition, in the sense that Sonys cell architecture for the PS3 was a stupid cocksucker to develop for which made ports and general game development difficult for no reason. As a result the 360 was just easy and since it was in the market first it made everything steamroll for them.Even that was only because they rushed it to market and covered up the hardware issues until they were too prevalent to ignore.
Unfortunately it was like the won the lottery rather than learn any lessons. So they expected to keep winning the lottery, while Sony was learning and fixing its mistakes.