Xbox only ever existed to sell software because MS sees themselves as a software company. Sony will hold on to game exclusives because they sell consoles and Sony sees itself as a consumer electronics company.
The idea MS would kill the Xbox hardware (or even let it fall significantly behind PS hardware) is hard to swallow even if they license Xbox to 3rd party hardware makers. Much like they make the surface pro as a reference machine for windows touch computing, the MS made Xbox would certainly continue to be made as a reference unit to show players how Xbox gaming should behave.