Time to respond to some comments I am hearing...I disagree totally that consoles are superior for gaming.
FPS games on a PC are far superior, the keyboard+mouse is much better control than a gamepad can ever be. Developers on games like Shadowrun and Halo have freely admitted that the reason there is no cross platform play with PC/console is that the PC would dominate.
Next, PCs have RTS games that don't really exist on the console, things like Starcraft 2, Sins of the Solar Empire, C&C, and the soon to come Spore...
Hardware upgrade is a drag, but only if you really want to stay cutting edge. You can still run newer games on older hardware, but just not at the most pimped out settings. Consoles are frozen in time, PCs can evolve...
Tech wise, I think a PC is superior in every way, it just does indeed cost more.
Xbox has a big downside to me as well that new releases cost 59 Euro each here, that is 100$ Canadian PER GAME! I would be only bargain bin shopping as far as that goes.
PC is also multi purpose, I can do all my photoshopping, video stuff, and music stuff.
I am not saying the Xbox is bad, just that I think a PC may more suit my needs right now. The main appeal of an Xbox to me is the community of online play, which would be limited by my location, and the possibility to use it as a media hub. But then I would probably need to add some PC hardware to my network to make sure the hub media is all there and streaming to the Xbox anyway.
Then there is the matter of the Xbox hardware. All accounts are that it is still not very good. 30-40% hardware failure rate, even if covered by warranty is not cool. The 6-pound power brick that heats a small building, the airplane-prop sounding drive... not indicators of optimal hardware.
At the moment, I am leaning towards a mid-level PC, something with socket 775 on the processor so I still have a future upgrade path if I want, but affordable in my small budget now. I would ultimately like to add an Xbox to the mix one day, but I still think that Microsoft will be improving the hardware as time goes by. 45nm processors, a reduced size integrated power supply, and improved cooling would all be on my wish list there.
One other factor about the Xbox experience is that I do NOT have a giant flat screen TV, nor will I be getting one in the next long while. I also don't have any sort of sound system in the living room.
We live with a nice 32 inch CRT TV and use the built in speakers. It is big enough for our needs and we don't have the 1200 Euro or so that a comparable LCD would cost.
Keep in mind, my current PC is a Pentium III.