MS should respond with more good games.
Too many third party games fail to use what the architecture offers.
(Just consider the FABLE trailer vs the currently shipping games.)
I suppose a lot of it is the delay in getting UE5 out the door but FABLE and STARFIELD aren't using it and they look properly current-gen.
Hardware? Nah.
Anybody who saw the teardown videos of the PS5 and the XBOXes knows the XBOXes are more polished, compact, and cheaper to assemble, probably by robots, while the PS5 is a mess of cables, daughtercards, and different types of screws.Plus its cooling system looked marginal. (They slipstreamed changes, there so it might be better. But I wouldn't bet on it.)
So a redesigned PS5 (Slim) was a given.
Likewise, a PS5 Pro adding the missing RDNA2 features is an easy prediction.
The only reason we haven't seen either is because of the pandemic chip shortage.
In the (unlikely case) MS were to do an early life refresh the likely target would've been the SX getting a 12Gb or a 6TF variant. Instead they just swapped out the standard 512Gb SSD for a 1TB card so they're still targetting the FullHD installed base of TVs with it.
They really have no need to do any more on the hardware side.
They do need to get software developers to better use all the existing hardware features, especially the ones PS5 lacks, since most of the issues come from the failure to use properly use everything already in the hardware.