Although I'm not the one that said the 7800's design was "out of date" I think it's quite obvious that it was if you think about it from the perspective of what gamers were wanting and expecting in the mid-to-late 80's. Single screen, "for high score"-type arcade games were out, more engrossing hop and bop type adventure games were in. From that perspective, the 7800's design scheme was truly "out of date." And I don't mean this as a knock on the system; I'm just calling a spade a spade
Of all the things that killed the 7800's chances, most of them were out of their hands and couldn't be helped either way. HOWEVER, the decision to keep the VCS alive (in junior form) along with the XEGS and whatever else put them in a situation where they were competing with themselves for what was left of the quickly dwindling "Atari-loyal" marketshare. The 7800 may have done somewhat respectfully (ie: competed with the SMS for a distant second place) if Tramiel had focused all of their resources on that one system alone. (For the record, though, I'm glad he didn't, as some of the later red-label VCS releases kick ass!)
Finally, sorry for straying so far from the original intent of this thread.