Also, the market for HTPCs is small because most people don't want to construct and maintain another computer to get this functionality when they can buy it or rent it from somewhere else. But the market for XBOX is big and about to get even bigger given the introduction of Kinect and the implementation of this DVR concept. Why have a DVR, cable box, gaming console, DVD player, web app browser, etc. when you can just have an XBOX?
If Bill Gates' original vision was a PC on every desktop, then MSFTs vision for XBOX must be a console for every TV. The features they are banking on to expand the market from gamers to the rest of the population are Kinect (for living room based control without a game controller: high WAF), DVR (to replace an existing device and reduce clutter and complexity in the process: high WAF), and features that MSFT serves up via XBOX Live, which will presumably include Skype, FB (very high WAF), and browsing. Suddenly, there is very little reason to ever use a laptop in the living room (very high WAF), and the XBOX becomes the primary point of interaction between people and consumer electronics.