Its an interesting question.
I bet the MS decision makers would say that Kinect is what MS needs to differentiate itself from the competition. The Wii stood out due its Wii controller, and sold like hot cakes despite weaker hardware. MS was probably hoping that, if they could build Kinect up into a big enough brand, that it could practically sell hardware for them. Hence the Xbone's reliance upon Kinect - it can hardly sell systems if it is optional.
Look at it this way - the MS and Sony consoles of the previous generations did the same thing - they could play games. The only difference was that the Sony console happened to be a Blu ray player, which did help get it into some homes. MS obviously also had a lot of success integrating Netflix etc into XBL, which is great for two things - it helps sell XBL subscriptions, and it gives consumers another reason to buy an Xbox. It is a differentiating factor in a very competitive market place.
They also looked at the Wii, and they see a system that sold itself practically off a gimmick, as some termed. So MS thinks, we need a gimmick, and we need a greater focus on non game entertainment, in order to differentiate ourselves in the marketplace and give consumers more reason to buy our console.
I think it could have worked, except for two things. The first is that they completely missed the point about the Wii being cheap to manufacture and selling for a low price. That was what made it so successful for Nintendo. The second is that they really screwed the pooch on the DRM. I'm not sure they can recover from either.
I suppose the problem is that, they are already trying to sell a console less powerful than the PS4, and unfortunately, this time around, they are far easier to compare since the hardware is more similar. Last generation, the PS3 and 360 were difficult to compare due to their vastly different architecture. This time, they are so similar it makes it very easy to identify which is the more powerful, which of course is the PS4. Now, while their hardware is less powerful than the PS4, its actually more expensive to produce partly due to Kinect. This means that, while I'm sure they would love to go after the $199 to $299 price point, they just cant afford to. So they are stuffed.