Microsoft announced yesterday that it enjoyed its most successful year ever for the Xbox in 2008, with the number of users growing to 28m worldwide, increasing its lead over Sony’s rival PS3 console to 8m units.

More significantly perhaps, is the 84% year on year increase in sales via Xbox Live, which suggests that, despite lagging behind the Wii in terms of the number of consoles sold, its online strategy is paying dividends.

Some bloggers had even suggested that the Xbox was doomed to fail thanks partly to the success of the Wii, as well the ‘red ring of death’ hardware problems experienced by many Xbox owners. I wrote a post at the time taking issue with this view, and it seems that Microsoft is now doing pretty well in The Battle For The Living Room.

Microsoft dealt neatly with the PR disaster of console issues in one stroke, by guaranteeing and paying for all repairs to faulty units, at an estimated cost to the company of £1bn.

And, while there’s no doubting the success of the Wii, especially in appealing to families, its online experience so far lags behind that of Xbox Live, which now numbers some 17m ‘active’ members who have spent more than $1bn (£685m) online in the last three years.

With this userbase continuing to grow thanks in part to price cuts on the Xbox 360, it represents an impressive revenue stream for Microsoft which looks set to continue as it adds more downloadable movies, TV shows, arcade games and add-ons for existing games.

What’s more, it has amassed a huge slice of the lucrative gaming market from nothing a few years ago, and leads both Sony and Nintendo in terms of online experience and online user numbers.

Microsoft may still be waiting to make a profit from the Xbox, but with the income from Xbox Live users, it looks like its long-term strategy is paying off, and that the company is now in a position to prove some of the doubters wrong.