Microsoft's first try at a gaming console amounted to essentially a very affordable PC. It used standard PC components, including a mobile Intel processor (a hybrid Pentium 3/Celeron), a desktop NVIDIA chipset, a Western Digital hard drive and relatively standard PC DVD-ROM. The original Xbox was such a PC in fact that there were quite a few users that wanted to mod it simply to have a cheap PC, not even for gaming - including ourselves.
Before the Xbox was launched, Microsoft was very concerned with users thinking of the Xbox as nothing more than a PC branded as a gaming console, so it went to great lengths to reduce the association. For example, the strict ban on keyboard and mouse support, despite the fact that the console implemented the standard USB interface.
With the Xbox 360, Microsoft gained some benefits of the original Xbox success. Xbox didn't win the sales battle against Sony's PlayStation 2, but the first Xbox was strong enough to cement Microsoft's name in the world of console gaming manufacturers. For their second time around, there is less worry of the Xbox 360 being viewed as a just a PC, so Microsoft took a bolder approach.
News source: AnandTech