Intel is rumored to be heavily courting Microsoft for inclusion of its high-performance GPU Larrabee in the next-generation Xbox, according to The Inquirer. Its source states that Intel is willing to make a lot of major concessions, the logic being that inclusion in the console would compel game makers to develop for the chipset, thus increasing interest in the consumer PC market and making a dent in the GPU market dominated by ATI and Nvidia. It's certainly not a far-fetched scheme; we'd be surprised if Intel didn't at least make a pitch to Microsoft, regardless of the actual terms.
The Xbox 360 currently uses a PowerPC-based CPU from IBM and a GPU designed by ATI. Should this rumor prove true, our first reaction is "cool" and our second is to wonder about backwards compatibility, which became an issue given that the original Xbox's GPU was based on a different, Nvidia-based architecture in comparison to its successor.