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If Apple goes through with this, here's what you'll probably end up getting:

*A 'next-gen' Apple TV unit (and by 'next-gen' I merely mean it'll be the newest model in the line, not that there will be anything overtly 'gamer' about it). It'll be small, cute, and nowhere near the graphical power of a 360 or PS3 (think more of something fitting between Wii and the hardware behemoths). It'll have a faster proc than a standard, limp, Apple TV box, more RAM and a beefed up video card over what comes stock in an Apple TV today (one of the newest NV GO! boards or somesuch). I'd also expect a larger hard drive for true HD content (the current Apple TV, frankly, sucks for this sort of thing). Naturally you can do all the things with it that an Apple TV unit can do plus play games (it'll be branded as Apple TV Plus or Apple TV iGamer or some other, horrifically generic, Apple-ish name). And like an Apple TV  unit (with video), I wouldn't be surprised to learn that it can stream games to other TVs in the house (or even to your iPhone a la PSP remote play). It will also come with a 'wii-mote' of some sort if only to draft off Nintendo's slip-stream to some degree (and, of course, the iPhone has its tilt functionality so it'll have to support that) and will also likely resemble a remote control just like the wii-mote (there's no way this thing comes with a standard game pad, even had the wii-mote not been invented). There will be no Blu-ray drive or any drive at all, just some USB ports.

*The games will be iTunes store-only and will play both the current iPhone games as well as iGamer-specific titles. I also wouldn't put it past them to make sure that all their games play on both the box and the phone, thus killing two markets--portable and home--with one software stone (whether or not this merely means remote play writ large or scalable software, it could go either way). They will also be heavily-weighted towards 3rd party vendors, and it's very highly improbable (look at Apple's business model for everything else) that they will produce anything but the most basic and generic games. Do not expect to see Super Steve Bros. (starring Jobs and Wozniak, of course!). They will also be mostly of the PopCap variety, i.e. super-casual (yes, moreso than the Wii for those of you that insist the Wii is only adored by grandma and not actual gamers).

What this all boils down to is this will be Apple's play for the living room super-hub that MS and Sony have been desperately attempting to create for the past two generations. They'll probably be more succesful at creating such a device than either of the latter simply due to Apple's current market cachet, but any 'hardcore' impact on the gaming sector will likely be minimal (unless Apple does something incredibly un-characteristic--and stock price-damaging--and starts springing for lots of exclusive content).

They won't go the 'full fat' console route for several reasons:

* They won't relish the idea of spending tons of their iPod booty on R&D for such a box (e.g. custom GPU, CPU, etc.)
* They won't relish the idea of spending tons of their iPod booty securing exclusive content.
* The competition in the gaming sector is about as cut-throat as it gets and they'd have to spend *tons* of money in marketing just to make a dent in the consciousness of the average consumer (please note "average" i.e. the people that are buying Wiis in droves, not the fanatical Mac fans or your average NYC, SF or LA-dweller that thinks it'd be 'hip' to own an Apple game machine).
* There's no way this device costs under $250 and, thus, no way it competes with the Wii--Apple will want to be number one (which is another way of saying, actually, that Steve Jobs want to be number one) and it just won't happen with the hardware they'll need to bring to the table to make this device work (and to make a tidy profit on the hardware), so they'll forge their own path to set-top glory (again: this is merely game-playing functionality built into a pre-existing product line--it is not a game console in the traditional sense).
* Going the traditional console route is, essentially, a 'bet the company' deal if you don't have billions in cash you can *afford to lose* in carving out a sizable marketshare. Apple will simply not do this--it's not in their DNA nor are they as loose with cash (or nearly as rich) as, say, Microsoft who has managed to lose about 5 billion bucks in far less than a decade.

Naturally my greatest fear (already echoed here) is that it'll bring the Macolytes out in even greater force and, as others have noted, there is literally *nothing* worse than a Mac fanboy--they are literally the Scientologists of the consumer electronics universe and are simply maddening to deal with even in quantities of *one*.

Disclosure: I own a multiple Macs (but spend most of my time on a PC), mutliple iPods and own Apple stock so if you hate this take on what it mgiht look like, realize that it isn't coming from someone that dislikes Apple (but I most certainly do hate the cult of Apple).