Well for one thing, the Xbox is only a Pentium III 733 MHz with 64mb of RAM. This limits the number of MAME games such as the larger Versus games such as KOF, Street Fighter etc (I am not sure which ones but some will load while others will run out of memory). I have a ton of games installed on mine but they work alot better on my actual gamecab instead (P4 2.8ghz with 1gb RAM. It will allow plenty of other emulators though and to me thats one big plus. Also if you like videos, the Xbox has the ability to run like a media center PC which is what I really use mine after building my cab. I have not really used my Xbox as the guts to a cabinet so can't help there.
So its a great console to run emus on, even though it may not be the best solution but it would be a great way to get a cab up and running if you didn't have a PC available to use.