The world of IT is always in search of the Next Big Thing. Every department has its own, the new technology or concept that is supposed to instantly become a killer feature and make a lot of money for its makers by virtue of everybody buying one.
The one currently touted by the PC hardware scene is the media center. It's been around the block a few times, but was given a new lease on life by the announcement of the new generation game consoles. The idea is that these things will take over the living room, providing full functionality and replacing the DVD/DVR/audio stack. You may remember (vaguely) the Sony PSX, a PlayStation 2 with a hard drive and a broadband connection. It was released, too - in Japan. Now tell me: do you actually know anybody who owns one, or has at least seen one?
The PS3 and Xbox 360 are supposed to be good at this sort of thing because of their muscle. Games these days need kick-ass graphics, and consoles are at a significant disadvantage here because the initial architecture needs to account for five years of adequate output, which in IT terms is an eternity. With PCs, you can always release a game meant for the latest, greatest hardware: people may not upgrade as much as you'd think, but at any one time a significant percentage of the user base has just gotten themselves a new toy. So the consoles are using shiny technology which promises truly magnificent things. As gaming devices, the PS3, Xbox 360 and Nintendo Revolution are going to succeed wildly.
As media centers, they will fail miserably.
Media center PCs have failed for the same reason. It has to do with the fact that you cannot make a universal device. You just can't. My Archos Gmini 400 is a half-decent mp3 player, although if I was really after music I'd probably get a Creative Zen Micro, because it looks better and sounds better. I got the Archos because it's also a functional - but not very good - video player. (Actually the real reason I got it was because it's got 20gb of storage and mounts as a generic USB drive. The killer feature has nothing to do with its primary or secondary functions. Go figure.) I was willing to trade off for the extra ability, but in the portable device market, the user faces an insurmountable constraint. Whatever you get, you need to be able to carry.
In the world of living room equipment, the manufacturer cannot count on something like that. Space is decidedly not a limiting factor; the sort of person who is truly distressed by fiddly knobs and messy wiring will be too embarassed to prominently display an Xbox; they probably own a Mac Mini. The market for game consoles that wish to transcend their natural boundaries is that of early adopters and gadget lovers, and in all likelyhood they already own specialized equipment whose capabilities far outweigh anything even the mighty Cell chip can conjure up.
Plus consoles are hugely expensive; for the $400 a proper Xbox will cost, you can get a decent DVD player and home stereo system which will be much, much easier to use. Even compared to a wireless controller.