The rail network here in the South West is awful. First have a monopoly on direct services to Reading & London, South West Trains have the monopoly on the other line to London. We have a choice of using Virgin or Wessex trains to get to Bristol, that much is true, and south of Exeter there's the option between Virgin and First, but don't go south very often.
In regard to Virgin Cross Country, their franchise does end in 2007. However, this isn't because it's been stripped of them. They have, in fact, a restructure which will amalgamate Central Trains Citylink services. Virgin are free to bid for this. It's no different to the restructure of the Greater Western franchise, which First have to bid for.
In regard to rolling stock, the mk2 and mk3 that Virgin have/had was not well maintained. Same with the HSTs that First use, save those they've just got from other operators and *had* to refurb. When they had the Adelante problems they shifted HSTs from the West of England to Wales and gave us refurbished mk2's (They still use these on the sleeper service) and the quality was much better than the mk3's they ran. Amazing what re-wheeling and re-seating will do... if only they could be bothered to invest properly in rolling stock!