Making a console makes perfect sense for Apple. Not because they want to compete in the console video game market (though they obviously would be) but because they want to compete in the content delivery market. They want their own box to sell their own goodies on like MS is doing with Live and Sony is setting up with PSN. All three companies probably see set-top boxes as the future and they each want to create an ultimate all-in-one device.
Sony and MS want you to play their games, sure, but they make a lot more money if you're buying the other content they will/do provide. If you buy movies and TV shows they make a whole lot more money. Especially Sony, since they own a major studio.
And Apple probably wants a peice of that pie. The upside for them is that they get to come from the other direction (they already have the content service down pat, unlike the competition). Plus, they already have a massive asset in the iPod which would, quite obviously, have functionality with the proposed console. Since they already have the iTunes service in place, pairing that with a device that can make it even easier to put music on your iPod is a good advantage the competition can't shake.
While Apple does need to be prepared to sell less than 10 million, perhaps much less, the combination of nearly virgin territory (steamed-content set-top box industry, not consoel gaming) and existing infrastructure to take advantage of that resource make it worth the gamble. The rewards outweight the risks drastically for them right now, and following their MO it's pretty likely that the system will be sold for a profit day one with performance between Wii and 360 and a launch like any of Apple's other recent products (which is to say better than Sony and MS have done this gen).
You do not have the right to never be offended.
