heh, there was actually a console that used linux as its base. Personally I think it would be great to use some sort of linux as the OS base for a console. There are lots of apps, drivers are already written. Its powerful, scales well, handles memory well, plus its already available.
Just build a special distro for the console, It wouldnt' be all that different from a development standpoint. Plus, if it had enough power it could emulate xbox games through WINE.