Microsoft Corp. (Nasdaq: MSFT) has long said the Xbox is designed specifically for gamers, yet the device itself suggests that Microsoft is aiming to be the centerpiece of the "connected home."

Home gateways are emerging as both the termination point and the distribution center for voice, video, and data traffic in the home network. The “next-gen” home gateways now coming to market bundle together cable or DSL modems, a four-port router, a wireless access point, VOIP ports, security, and various other features. (See Cisco: Do-it-All Gateway on the Way .)

“Yes, consumers can use the Xbox 360 as the hub in the home,” writes Todd Holmdahl, corporate VP in charge of Microsoft’s Gaming and Xbox Platform Group in an email to Light Reading.

“They can attach USB devices such as iPods or Flash drives to Xbox 360’s USB ports and play music and show pictures from those devices; they can also use the hard drive to store music and videos to play back," Holmdahl adds.

Like its gaming peers, especially Sony Corp. (NYSE: SNE)'s Playstation and the new Nintendo Wii consoles, the Xbox comes complete with an Ethernet port on the back. “The Ethernet port allows anyone to use their Xbox 360 console to access the Xbox Live service right out of the box,” Holmdahl says. “Users can also connect to a home network using the Ethernet port and connect to Windows XP devices and Windows XP Media Center PCs to access their media."

The Xbox also has a voice component. Gamers can establish a peer-to-peer VOIP connection with fellow gamers to “strategize or talk smack,” as Holmdahl says. [Ed. note: Groovy, man!] Other Xbox features would go nicely in the hub of a home network. The Xbox can draw content from connected PCs on the home network and can play DVDs, CDs, and MP3s, as well as display JPEG images on the television.

The console's processing power could easily be used for managing IPTV video streams. (See IP Video: In the House.) The Xbox comes with three core processors, each running at 3.2GHz with 512 MBytes of memory and a 20-gig hard drive. Microsoft points out early and often that the device supports high-definition video. (See Microsoft Preps for Telco Battle.)

But, while Xbox 360 does connect to game controllers wirelessly, it doesn't yet provide a wireless access point in the home.

Still, service providers and telecom equipment makers are watching with interest as Microsoft nudges its way into homes worldwide. In fact, while carriers are just coming out of the gates with home gateways, Microsoft says it expects to sell 4.5 million to 5.5 million Xbox 360s by June 30.

“If they win the residential gateway business, it could take a lot of services potential away from the service providers,” says Occam Networks Inc. (Nasdaq: OCNW) marketing VP Russ Sharer. He, like others, is convinced that Xbox has potential far beyond what Microsoft has publicly announced. “Microsoft could put a SIP agent in the Xbox and a SIP proxy in Redmond, and all of a sudden they’re switching phone calls instead of the local telcos,” Sharer says.

— Mark Sullivan, Reporter, Light Reading