Only thing I'm confused about is why they'd go with PowerPC cores. AMD Athlon 64/FX-5x processors dominate gaming performance across the board, and do it at lower clock speeds & lower temperatures than these 3.0+ GHz CPUs.
Very true in the PC world, but there are two things to consider when it comes to consoles: first, the computing environment is completely different, insofar as you're not actually designing a multipurpose system. The overhead that will be incurred by the OS is far lower, so you can achieve more app-level glitz at lower horsepower. There's no good way to see whether the AMD line, in that environment, actually outperforms the PowerPC line clock-for-clock without actually doing real world benchmarking*. Which, presumably, MS has done. The second is price: at the size of the contract involved in producing Xenon, there's no knowing what kind of deal got cut with IBM for unit price on the CPUs.
The other issue (which will make 3...ah, well) is that MS is unhappy with the non-gaming uses to which people put the XBox (since it potentially eats into their PC software business, particularly as they try to sell Media Center). Moving away from an x86-compatible core will put the brakes on current development efforts for the XBox. At the very least, it will force people hacking their consoles to start from scratch. At best (from MS' POV), it will cut down the number of people even able to start doing it, since the PowerPC programmer base is so much smaller than the x86 programmer base.
*Edited to add: the other thing to consider is that, in the world of the console, the CPU may not be the limiting factor, particularly in comparison to RAM. If there's a target amount of RAM to be put in, there's no reason to include a CPU that can run well past what the RAM can handle.
