Well, you only buy your Xbox once. You (and by You I mean people like Me) tend to buy lots of games and controllers. If a lot of people have their system then a lot of people will buy the games, so it makes sense to take a bit of a loss on the system at first. Eventually fabrication costs will go down and Microsoft won't loose as much money on the 360.
Actually, I think Microsoft is still loosing money on the original Xbox. There's no way it costs them less than $150 to manufacture that system. It's got the equivalent of a $400 PC under the hood. The 360's got two grand worth of PC components in there easy. It probably doesn't cost two grand for MS, but it would for you or I.
Itar, Nintendo is clearly shooting for the casual and non-gamer market. I could see my Grandmother playing the Revolution, and that's saying a lot. If they can get some more mature games ala RE4 or a kind of Jedi Knight III they'll grab market share.
The Dreamcast failed because of Sony's hype machine. Sony all but lied about what the PS2 could do -- they promised PS3 quality graphics and... other lies. Pity they couldn't deliver. The Dreamcast still has great graphics, imagine what it would be putting out now after the devs had a few years to get used to it...
Anyway, I plan on buying a 360 some day and most definitely a Revolution. Maybe a PS3, but probably not. I've never been a Playstation fan.