Whatever the reason, the Xbox was a money pit for Microsoft because of hardware cost.  If Microsoft still believed in the Xbox, they still could have cut a deal with NVidia.  But it was a fact that hardware costs was an issue, thus validating Moore's comment.

All consoles next generation will have hard drives or standard storage of some kind. That is the future of gaming, it is kind of funny that ms went in reverse. Sounds to me like they should have ridden out the xbox a little longer and fixed the RROD problems. But hey what do i know!

The reason the OG XBox died off so quickly was because it was a money pit as others stated, and that was the only reason. Otherwise MS would have probably kept the consoles on the line for another few years.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/08/15/BU190365.DTL

Microsoft and Nvidia dispute.
Essentially Microsoft could not get Nvidia to lower the cost of GPU that couple with then high cost of HDD let them to prematurely end Xbox.

Thanks for posting the link. I was aware of this but too lazy to go searching. MS definitely learnt the hard way about this.

they originally used 10gb hds, but later they started using 20s as they were cheaper, and limited them to the older drives formated space.

the nivida thing hurt big too, there were alot of factors that killed the original beloved box

Oh yeah, the Xbox was in "great demand".

^I agree, but that had it´s price: rrod.
We will never know if, without rrod, M$ would be better now. Maybe the 4mln gap in the same timeframe wouldn´t happen. If they delayed the x360 until october 06, they would´ve put a heck of a figth with ps3, but the MS image wouldn´t be hurt. I personaly think image and brand is half your business.
Delaying it, they could make the hw compatible with bluray or hddvd. That way, they could release an upgradable drive latter, so the BR wouldn´t hurt price that much as it did with ps3, and they would be able to take one of the amrket advantages of the ps3. The time gave MS a bigger library and user base, but time is taking that away, and Sony is gathering momentum. In my opinion MS should have taken the loss and kept the xbox, while they perfected the new x360. Without RROD, many people that didn´t buy it, chosing ps3 instead, would have thought : I can upgrade the HD, the BR/HDDVD, it has a better price and online service, than conclude x360 it is. But taht´s my opinion.

Well I think thats just one part of the major issue which was, they bought the box for too high a price tag to begin with.

Original XBox sold amazingly well for an experiment project from MS.

Original XBox was a huge money sink, generating huge losses on every console sold. 25 million XBoxes sold created 5 billion dollar loss to MS.