Similar to the earlier vague announcement that ATI will be producing chips for "future Xbox technologies", Microsoft has named IBM as party to an agreement wherein they are allowed to use IBM technology in "new Xbox products and services".
This has led to the widespread conclusion that the Xbox 2 will use a PowerPC architecture. It's not completely farfetched, as the PPC architecture is widely used in embedded devices where power and heat consumption are major issues; perhaps the plan is for the Xbox 2 to be sleeker and slimmer than its predecessor.
Combined with the ATI announcement, it seems as if it's possible that the next iteration of the Xbox console will use a different processor architecture and a different GPU architecture than the first; some point to Microsoft's acquisition of Connectix, with their VirtualPC product, as evidence that they will provide backwards compatibility with older Xbox games using some kind of emulation software.
Here's a roundup of stories on the announcement:
Some just report what the press release says, others jump right into the "Microsoft dumps Intel" line. We'll see.