Many industry observers are puzzled as to why Xbox 360 hardware sales haven't kept pace with the strong software sales of games like Call of Duty 2 (Activision); Fight Night Round 3 and Madden NFL 07 (Electronic Arts); Ghost Recon Advanced Warfighter (Ubisoft); Dead Rising (Capcom); and Saints Row (THQ). In fairness, Microsoft had well-documented supply problems with the Xbox 360 during holiday 2005, which they finally resolved by May. They have widespread availability, a year's lead time, and a $299 entry-level version--which has the same initial price as both the PS2 and the original Xbox. Yet despite those advantages, 360 sales are still trailing by a good margin not only the historical sales of the PS2, but are also lagging those of the original Xbox. Why? Here's what some of the industry's top execs told us a few weeks back.

"That question comes up a lot," says Laurent Detoc, North American president of the French games publisher Ubisoft. "The software has done really well, but it has not driven hardware as much as people expected. It's the question a lot of retailers have been posing. When you talk to retailers, who are selling more software year-over-year in June, July and August, but not necessarily raising hardware expectations for the rest of the year, it's because they're not seeing the hardware follow the software trend yet."

"Quite frankly, there may be consumers that are frozen," says Sega of America vice president of marketing Scott Steinberg. "They're waiting for PS3 to launch and staying on the sidelines before making a purchase decision about which one to go for. And it could easily be the old technology FUD factor; fear, uncertainty and doubt that's in folks minds. They don't want to necessarily buy the first platform that launches. They want to wait until they're on equal footing and pick the one that they think is going to be the best."

That's echoed even more strongly by Frank Gibeau, executive vice president at Electronic Arts. "Nobody wants to be stuck with the wrong machine. There's a lot of buzz and hype around the PS3 and the Wii coming out. 360 is not hurting from innovation or hardware availability or title availability. It's just hurting from the fact that people are taking a wait and see approach until all three are on the market and then they can choose."

Gibeau adds: "It's what happened a little bit last year and it's happened in prior cycles. It just happened a little earlier this time because the price points are so high on the hardware. I'd expect that with all three in the marketplace in November, the collective thinking of the gamer community can start talking about 'who's better' and 'who's worse.' Then you'll start to see the momentum get deployed."

But Elevation Partners' John Riccitiello disagrees with his peers on the quality of the software thus far. "There's been some good games on the 360, don't get me wrong, but there haven't been enough to really get people unearthed from their current Xbox or their PlayStation 2." He contrasts the situation heading into 360's second holiday with the PS2's second holiday in 2001. Led by what he colorfully terms a "murderer's row" of hit games "Grand Theft Auto III, Final Fantasy X, Metal Gear Solid 2 and Devil May Cry "the PS2 rocketed to November-December sales of 2.9 million units. Of the 360's major holiday software titles "Microsoft's Gears of War, Ubisoft's Rainbow 6: Vegas and Splinter Cell: Double Agent, THQ's WWE Smackdown, EA's Need for Speed Carbon "all are expected to do well, but few expect them to have the collective hardware impact of the PS2's four musketeers.

Riccitiello continues: "The best I've heard about anything that's shipped so far is 'It's just like the last gen stuff, looking better.' Unless by and large I'm looking for a graphics improvement, I don't have anything new yet. And frankly, in the absence of anything new, the fact that Microsoft is doing 210,000 units a month in North America is pretty good. There's half a dozen spectacular reasons to buy the Xbox 360 in the next 12 months, and that will cause a sales spike."

Next: Microsoft catches Sony slipping, and pounces.