Xbox is a gaming brand.
Not a music brand or even a general techonology brand.
Users look to Xbox to play games and because of some very good integration and a competitve library of content, they also use them to play movies, tv shows and music. The key word is also, no one(please do not name your sole outlier friend) is buying an Xbox to play video and music. For this reason, Xbox will never be ubiquitous with music player in the same way that Zune was, for this reason they've limited their potential audience straight out of the gate. Yes, Xbox is a strong brand but it's a gaming brand, they may get a decent number of Xbox users signing up but they don't have a chance in hell at ever becoming the top streaming service by cutting their potential audience to a small fraction of music listeners.
Another problem with this branding is that it makes the Xbox the new media hub, this may sound like a fine idea on the surface but it could prove to be detrimental to the former hub, the Windows PC. Xbox is already successful, Windows 8 is not and on tablets it may never be. Taking the media center away from Windows and giving it to Xbox is just another strike against a platform with limited consumer awareness, consumers who'll think of Xbox Music as an Xbox service that will run on Windows, instead of the other way around. Microsoft didn't need to give us any more reasons to buy an Xbox, the same cannot be said for Windows 8.