Something to note is that Nvidia is making the graphics chip for the X-Box and there is much to be expected from Nvidia. Microsoft is not going to make the machines themselves due to inadequate facilities, so the units are being constructed under contract by companies like Dell, Gateway, and Samsung. Microsoft will not even make much of a profit from the X-Box, because they have to integrate high quality and high cost components into a package most people can afford. You might be thinking that since it has a PC processor, hard drive, memory, and graphics adapter, it is a PC and can play PC games. Microsoft might pull a 'take a loss' strategy like Sony did where they sell units for a lower cost than it takes to manufacture, then make profits from royalty on games designed to run on it.
Lets get one thing straight, a PC and a console are two different things, inside and out.
A console's primary purpose is gaming, that's what it s designed to do, and it does it well. So it s not expected to be as great for gaming as specialized consoles are. Somewhere in between. The system is non-upgradeable, like a console, but has PC components. I would not go as far to call it a PC, but I would call it a home entertainment unit, much like the PSX2.