The Xbox performs fine in my opinion apart from the disc format. DVDs just aren't cutting it anymore. Crytek (a high ranking employee) supposedly talked to an online magazine and said they were building Timesplitters 4 currently on the new Xbox and that
it was shown off at E3 behind closed doors. They have since denied this completely but we'll see
I'm not surprised they are already looking at the next generation of console. They probably have a rough estimate about the specs, but I doubt they will have decided on it at the moment as the price of components
will keep falling.
They also just released Kinect so they would want more people to get it so they get more money to put into the next generation as they need to consider the costs for marketing etc.
Lets not forget, Microsoft will need to give developers prototype hardware, and development tools, at least a year in advance of the console release Which means they'll have likely worked out the spec 2 years before it releases.
I'd imagine with the 720 being ~2 years away, it will be a fair assumption to say it will be able to compete with todays highest end gaming hardware.