The volatility is what makes it untenable as payment, as you can't sell it fast enough to ensure that you get the same exchange rate you gave to the customer.
Absolutely false. Speculation has driven the value of bitcoin so high that the average transaction fee, at the time of writing this, is about $31. Buying a $59.99 game for Xbox One will cost you $90 in Bitcoin. That is an individual hash, that must be consolidated into a larger wallet for MS to sell off. Consolidating that hash will cost a transaction fee, meaning that, on a $60 game, MS will lose over 50% of the gross profit in a transaction fee.
That alone makes it not worth it. The only thing that would allow them to retain a higher percentage of the transaction would be for the Bitcoin bubble to burst, making that whole $60 worthless.
Bitcoin could be wholly volatile within it's 2016 prices and MS would be just fine. It is directly because of it's exploded, overpriced value that it's untenable as an actual currency.