Intended to fight "super consoles" like the PSX2, the rumors point to a commodity-based console system (a PC by any other name..) that runs a modified version of Windows. (Probably Windows 98 with a different front end.) Could this box be the final destination for Microsoft's mysterious "Mars" interface project? The Mars project has been described by John Dvorak here, here, and here. Dvorak's had a devil of a time trying to figure out where Microsoft is going with the Mars project, but this screenshot sure looks like a possible X-box web/mail interface to me. Obviously, this thing would be much more than a "game machine"; it would be something more akin to the early home computers like the Atari 800 or the Amiga 500, only with much more compelling graphics and communications capabilities. Especially in the era of broadband 'net access.
Of course, a WebTV interface is already included in Win98, and Microsoft owns WebTV, so expect tie-ins there, too.
The rumor mill for X-box suppliers is churning furiously in anticipation of Gates' GDC speech. It seems to be a lock that AMD will provide Athlon processors for the reference design, and NVIDIA looks to be the pick for the graphics supplier, despite earlier rumors that the fabless IP firm Gigapixel might provide the X-box's graphics engine. NVIDIA's stock shot up today on the news. AMD's stock, meanwhile, has been very heavily traded in the wake of the 1GHz announcement and the X-box hype. I'm betting on a 600MHz Athlon processor and an NV10 or NV15 graphics chip for the initial products.
It appears Microsoft will make the X-box a platform as well as a WebTV product, allowing competing vendors to manufacture compatible "X-boxes" of their own. If so, there's the possibility that competing boxes could feature, say, Intel processors and 3dfx graphics chips, if indeed the games make standard DirectX API calls. However, MS may elect to enforce rigid hardware standards in order to ease development, so it's hard to say.
Either way, I'd expect new revisions of these things offering better performance to be introduced with some frequency, as are PC graphics cards and processors. If you don't think a PC-based console can compete with a PSX2 in graphics, just wait for the next X-box revision. It won't take long.
So there you have it. Convergence in a box: part game console, part set-top box, part DVD player, part network computer, part Internet appliance. And, if the rumors are right, all PCmulti-vendor, commodity-based, and standards-driven. Is the PC dying? Nah. It's just taking over the living room as well as the office.