randycat99:
Realistically, why would a hardware "newbie" like MS suddenly be able to whip up a "better" CPU than Intel/AMD and a "better" GPU than nVidia/ATI in a mere 2 years? That is a tall, tall order no matter how you look at it. Otherwise we would be seeing companies such as Intel/AMD/nVidia/ATI being "rolled over" as a matter of routine. They are on top of the game and stay there because they have a great deal of intellectual expertise on the subject.
A company could design a better chip, but that doesn't mean a chip-making mainstay like Intel would be rolled over. The computer makers like Dell and Compaq have already established relationships with Intel, they sell their computers partly on the strength of the Intel name, they get pricing deals on the chips that only large companies like Intel can afford to give because of mass production and efficient fabs, and Intel leads many of the PC industry's standards and trends.
In the PC market, there are backward compatibilities and legacy issues to be maintained in every product, so a new company couldn't just expect the market to embrace their superior, custom solution just because it was better. For example, Sony couldn't just expect the whole PC industry to drop Wintel and follow their newer EE+GS architecture just because of its benefits. The new chip has to be restricted by the same compatibility requirements to be able to work with the existing tools, software, hardware, and architecture the PC market is geared to. Intel themselves could design a better CPU if they ditched the compatibility requirements and developed an entirely new architecture. But, that's not the way an ongoing, open platform like the PC market works.
And then you even have companies like AMD, whose chips do adhere to the same compatibility requirements as Intel, who have a hard time competing with the giant due to Intel's industry clout and the fact that so many more things are built with the Wintel standard in mind. Intel would naturally defend their market dominance against any new challenger, superior tech or not, by leveraging their support, marketshare, vast production resources, and finances to undercut them in some way.
The Xbox is a closed platform, so Microsoft could technically develop their own custom chip solution. However, I think Microsoft will push hard to maintain the Direct-X roots of the "X"box and keep it in line with at least some PC conventions.