I absolutely love Windows Media Center on Windows 7.
I have a quad tuner Win7 Media Center machine with a dedicated remote, and it's difficult to beat the DVR experience. I'd take it over DirectTV and FiOS's DVRs any day. But as great as it was (and still is), it was a flop with consumers. The dedicated media center extender hardware products were killed off, and the MCE laptops from Dell and HP disappeared (built-in tuners, remotes, dedicated button for "TV"), and they eventually just killed WMC altogether. Too bad, I think it really worked well.
The XBOX has one thing going for it.. it's already located in family rumpas room and connected to a big display, but I don't think was going to be enough for it to get traction. In my experience trying to use an XBOX 360 to watch TV, the menus are a mess, and it's difficult to fight past the ads, the tiles, the recommendations, the apps, settings, required XBOX account sign-in, forced software updates and restarts that take 5 minutes.
Average consumers need a dedicated DVR, and I salute MS for recognizing that.