If you think about it this idea is pure genius.
Try walking in MS' shoes. You tried for a lifetime to appeal to japanese market and gamers but you failed (for many reasons).
You tried to sell a console there, it didn't work.
You tried to bring japanese games, somehow it still didn't work.
What can you do?
Which other possibilities can you think of?
Answer: Let's team up with a home console manufacturer who has a historical and consolidated brand: Nintendo!
I think it will be a Win-Win situation :)