Is the new $99 Xbox 361 subscription based? If not, what would be the need of XTV? A smaller form factor like Roku or Apple TV, which is not really needed for an entertainment center? Unless your center is really space restrictive, which I can imagine the need for such a small form factor.
I'm not sure who you are talking to but so far I can't remember of any information on the matter.
I don't think that MSFT as to offer the same form factor as Roku, Apple tv, google tv, etc.
They won't be able to anyway because of the optical drive. I think a pretty flat (and thin) stackable design ala dvd/brd players would serve them well. Still you have the issue of power consumption, I would think that even with the shrink a 360 revision would still burn its fair amount of power.
I think that an integrated PSU would not hurt either but as I stated above I would think that even on a newer process the 360 would burn a significant amount of power.
$99 Xbox 361 should easily service the market targetted by XTV with better and bigger feature set.
Wrt 99$ price tag, if MSFT wants to more actively position that xbox revision as a media hub and offer a durango type of experience "on a budget", they may want to include Kinect (and the new want which production could prove lower).
Overall looking at the hardware, the optical drive, a (still) significant cooling solution, kinect, etc. It all adds up pretty fast and I'm not sure that they can sell at this price without at least a one year subscription.
I don't agree that the 360 could service the market (if there is one) covered by XTV (or Apple/google TV), those boxes are cheap, cool, without a pay wall, there are a lot more apps and services available, etc. The 360 doesn't touch that, actually windows 8RT neither (for now at least).
The 360 is imo at its limit, I haven't tried the last update(wrt UI) but I think that in 2013 this is no longer good enough (from my experience before the last update).
There is a lot of issue with the 360, how much power does it burns to decode a HD video? I guess way too much. It was not design as an always on, media consumption device it does a bad job at it.
They could add an extra chip+ram from the mobile world, but that would cost money and it would do nothing to lower the price of the 360 (/gaming part) by self, still speed demon CPU with healthy power consumption and the associated costs and limitation it set (cooling, psu, impact on form factor, noise).
My idea (if manageable in software) is that it would be better to redesign the 360 around more, slower (possibly tweaked) xenon cores with acceptable power management features, including a proper video processing unit, bumping the RAM (and the overall power of the system) in the process. If doable again might be better than adding a SoC to the SoC which doesn't nothing as far as price reduction is concerned just add extra costs.
wrt running Metro apps, if they are serious and looking at the humongous size of the company I would guess that if they were serious about this 2 sku approach (one based on /leveraging the 360) they should be able to swallow the cost.