Just in time for Ace Combat 6 to help lend the Xbox 360 credibility and greatly improved sales, bad news started coming out of the woodworks on virtually all fronts for Microsoft’s Xbox division. The continued hardware problems, Xbox Live issues and a sudden fall to third place in sales has got the rumor mill cranking on all cylinders, with all signs pointing to an exit from the hardware market by Microsoft Corporation upon the conclusion of this round of the console wars.

However, Microsoft having put so much into second and third party developers stands as a roadblock to them exiting the market entirely. This point leads us to a prior rumor, of the Sega brand being resurrected and Microsoft putting its support into the company developing and bringing to market a new console, perhaps the long-rumored Sega Phoenix.

Even if all of the aforementioned rumors are simply a load of BS, the fact remains that unless the Epic acquisition pulls through as rumored this summer and Gears of War 2 gives the 360 a much-needed boost, the situation is definitely looking bleak for Microsoft in the console business. After having so much momentum and the best online gaming network, their best appears to simply not be cutting the mustard.

Our contacts at Microsoft Corporation were all either unvailable for comment or simply declined to speak on the aforementioned topics.