It's better strategy for them. Whatever people think, TF don't win you a generation. If Sony gets a weaker PS5 but at 400$ I'm pretty sure they will be still very successful. They are unlikely to have a win of the magnitude of that generation, but that was a given from the start.
400$ weaker PS5 doesn't mean they lost. Personally, I believe that targetting 400$ pricepoint is the best they can do.
So does it make sense for MS to have two boxes? I am going back and forth on the strategy. I remember there being some rumour that Sony were also planning two boxes as well. I think it could be a possibility, and would maybe explain rumous around them having more powerful hardware than X. On the other hand, there hasn't been much of anything on Sony except hints, but an assumption that they are going with one box since there hasn't been any comment to the contrary by insiders. But then there hasn't been much concrete at all.