1. It's easier to code more advanced graphics on a known hardware set. The Xbox, iirc, is 733Mhz, and plays as beautifully as games on a 2.1 Ghz PC. Microsoft also collects royalties on games developed for the Xbox, but not for PC games. Development costs also go down as more units are produced and chip dies become easier to produce. They may not be selling at a loss anymore. *Microsoft wants to control your hardware*
2. It's an inroad to a PC in the living room, as was WebTV that MS bought up, and the Tivo clone that MS bought. *Microsoft wants to control your television*
3. It's an inroad to low-income families. They may not have enough for a game-capable PC, but they'll plop down $150 for a game console in an instant. People will argue with me on ths one, but I've seen a mother talking in an EBgames about how she's not sure she'll make rent this month, but each of her 4 children have their OWN xbox. *Microsoft wants to control your poor*