According to Microsoft's PR material, the console gaming market is approximately three times as large as the PC gaming market (about 30M compared to 10M). In addition, about 7M of PC gamers also own a console machine.
Therefore, the opportunity to develop for a console platform offers a much larger customer base, in addition to simplifying development by assuring that all users' machines will be exactly the same, limiting compatibility problems.
Microsoft is also promising that unique design features of the X-Box will allow it to offer graphics performance superior to much more expensive PCs.