I said this somewhere else in this thread, but making their own distro would be just craaaaaazy. Ubuntu is already free, comes in several varieties and is, frankly, better than anything they could do for the cost.

If they make a game console, which is rather likely it seems, they could just license Ubuntu embedded or ubuntu core (can't remember what it is called) for orders of magnitude less than it would cost them to build their own distro. Anything else just doesn't make sense.

Now, not saying they'll do that. The game industry is notoriously bad with NIH syndrome.