With PS2, Sony was moving their box to have more and more features of a PC built in, MS was affraid Sony would progress further on the PS3 and have more and more PC-like functionality where people might be less likely to buy a PC. Why do you think the 360 has no Internet browser??? ? It's not like MS doesn't have the software pretty much ready to go with IE - you'd even think it'd make more people comfortable with IE. But building an internet browser in a console would add one feature that's widely believed you need a PC for. They don't want people getting used to browsing the internet anywhere but from PCs. Again Having Office on 360 would also give MS a strategic advantage, but they don't want to go that direction.
I don't think it has as much to do with PC gaming as most think. Having more PC functionality developed could give sony a foothold and eventually they could make their PS OS compatible with PC's. If Sony were to get a monopoly on gameing they probably would try to gain market share by attracting PC custermers, and have the capital to build such software to become a real competitor.
All summed up: Microsoft doesn't ever want owning a PC to become unnecessary. PlayStation was becoming a threat to this.
