As I already mentioned, the original Xbox was pretty much a cut-down PC, running a standard x86 Intel CPU and an Nvidia graphics chipset that was very similar to the PC hardware around at the time. This time around, Microsoft went to IBM for the CPU. Codenamed 'Xenon', the 360 CPU is based on IBM's PowerPC and this one is a multi-core chip. The current crop of PC chips from both Intel and AMD have two cores, while Xenon sports three. Like Intel's Hyper Threading chips, each Xenon core can execute two concurrent threads, so in theory Xenon will be able to execute six threads simultaneously.
The CPU is manufactured using a 90nm process, much like the latest PC processors, while the 3.2GHz clock speed is also on a par with PC chips, and is light years ahead of anything seen in a console before. What is strange is that there is only 1MB of Level 2 cache shared by all three cores - the 3.2GHz dual core Pentium Extreme Edition has 1MB of cache per core! Only time will tell if this proves to be an issue, but you can expect all early games to be running in a single-threaded environment anyway. What is exciting is that as developers become more skilled at producing multi-threaded code, games on the X360 should just become better and better!
As any PC gamer will tell you, the only thing more important than the CPU is the graphics chipset - here Microsoft switched allegiance from Nvidia to arch-rival ATI. The ATI GPU - codenamed 'Xenos' - is a very interesting chip. In essence you've got a GPU manufactured using a 90nm process running at 500MHz, but it's not quite that simple. Although many people out there (myself included) expected the GPU in the 360 to be an almost identical part to a PC graphics card, it really isn't. The GPU is supported by a second die containing 10MB of embedded DRAM - this is where that lovely anti-aliasing is processed.
There is 512MB of GDDR 3 memory to play with, running at 700MHz, but this is shared between the system and the GPU. What's interesting here is that the memory controller is actually embedded in the GPU so there is no separate North Bridge - much like an Athlon 64 system, where the memory controller is integrated into the CPU. Continuing the integrated trend, Xenos also implements a unified shader model. Whereas PC graphics chips will have a number of vertex shaders and a number of pixel shaders, Xenos just has shaders. These shaders can be either pixel shaders or vertex shaders - this is a dynamic process and should avoid vertex shader or pixel shader bottlenecks that can occur with PC hardware. I guess this ties in well with ATI's drive for efficient execution over the number of pipelines - something that the company was pushing hard at the X1000 launch in October.