We started thinking about the next generation before we shipped the Xbox 360. It doesn't start with a date. It starts way upstream with silicon development. From that comes a series of data points. You start making early technology choices.
It's an evolving thing. Stuff doesn't become concrete until you get inside a window of when you have to ship, more than 18 months or so out. Late last year, reports surfaced that Intel is trying to sway Microsoft away from the AMD processors that currently power the 360, and get their own new chipset (codenamed Larrabee for reasons only Intel understands) into the Xbox 720. Intel has apparently offered Microsoft a very one-sided deal in order to wheedle itself into a strong relationship with the computing giant. If they succeed, you can expect to see a lot of ripple effects of that relationship in the future.
The 360 is working on the next-gen system, and they're looking deeply into what kinds of processor will be available on the market in the next few years. That would mean that the 360's projected lifespan will approach seven years, nearly doubling the tenacity of the original Xbox. He also said that the Xbox 360 will be supported 'as long as it sold', regardless of the 720's actual production dates. Microsoft lost more than a billion dollars launching the 360, and their decision to extend it's lifespan is probably an effort to get more money out of the system before they experience another huge loss launching the Xbox 720. The 360 hasn't been produced since October 2005, but sales are still strong, so the company is riding the profits for now.
