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Microsoft doesn't want you to have the mindset that you can do 'PC' style applications on a home console, it's that simple. If you're console replaces your PC they can't sell you windows. Wanna surf the net in your living-room, buy a laptop/netbook. It's about protecting their windows monopoly. It's largely believed they entered the whole console race to try to take down PlayStation because they were afraid PlayStation would eventually start including PC functionality, and if it can do everything your PC does(why not the hardware is there) you don't need a PC anymore. Which could lose a tremendous revenue source, as well as face a real competitor in the OS market- considering people would become familiar with PS's interface.
Sony even outlined including more and more functionality is where they wanted to take PlayStation before PS2 even launched.

I'm not saying PlayStation is there yet to replacing your PC, but it's possible they could have been if left alone on the market.