Can the Xbox 360 IPTV Take on Cable?

Microsoft recently announced IPTV capability in the Xbox 360 with support from ATT using their new FIOS services. You can check out a video of it in action at Xbox's CES coverage. It seems to be very responsive and will include not only PVR functionality but the ability to download and view rental movies from the service provider via a video on demand service.

The bigger picture is will the Xbox 360 replace set top boxes? There was recent news where Comcast lost a court appeal against the FCC about opening the standards used for set top boxes so there will be more competition. This could be Microsofts big push into the living room and with a big company like ATT behind them they could really take on the cable companies. Over at Nyquist Capital Andrew has the same thoughts :

And whether you believe it or not, MSFT is shaping up to be the leading vendor of IPTV middleware. It isn’t a big leap to say an Xbox-Lite (no videogames, MOCA connectivity) would make the perfect set top box.

I think there is a lot more to the IPTV announcement than simply giving Xbox users the ability to watch TV. As some people have pointed out, there is not a huge IPTV user base right now so I don't think that's what so big about the announcement; it's about building the software and hardware to replace the set top box or be the 'box' in the living room whether it be for video games, TV, movies, music, or anything else.