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Bill Gates was showing off his new baby. It was March 2000, and thousands of people packed the room at the Game Developers Conference (GDC) in San Jose, California, and the event was broadcast on TV worldwide. Standing on a dark, cavernous stage, Mr. Gates talked about the future of video games. He pulled a black shroud off a table and there was the machine, a shiny chrome box in the shape of the letter X, with a big green jewel in its center. "The modest tag line here is the future of console gaming," he said. Offstage, Jonathan "Seamus" Blackley was worried sick. "I was under so much stress, it was remarkable I didn't explode," he recalls. The renegade program manager who was one of several co-creators of the Xbox, Mr. Blackley was a main character in an internal Microsoft insurgency that convinced Mr. Gates to spend an estimated $5 billion to $6 billion to enter the video game business. This was Mr. Blackley's spotlight moment. He and a small band of fellow renegades had convinced Mr. Gates that Microsoft had to field a non-PC box that didn't run Windows, that the company had to go into the money-losing hardware business, and that it had to defeat Sony's PlayStation 2 game console or surrender any hope of controlling technolog