The next-generation Xbox (which many people speculate will be called "Xbox Next", based on recent domain name registrations by Microsoft) is a much more broadly-focused multimedia device than the current console, he says.
Some of this functionality could make it into the Xbox before a new console launch - several sources tell us that Microsoft is considering major upgrades to the Xbox Dashboard in the near future, including a possible integration of Internet Explorer and Windows Media into the console.
Next-gen features include "digital media capabilities such as video and photo editing" and "Internet capabilities without the need for direct connections through Wi-Fi," Billg says.
This makes the Xbox 2 sound very like, well, a PC - indeed, if the system combines Internet, video and photo-editing functionality with a games console, it may become an attractive alternative to PC ownership for a lot of families.
However, there's also a danger that the new multimedia focus will dilute Microsoft's games offering; much of the success of Xbox to date can be attributed to a relentless focus on gaming, which has won the hearts of the key hardcore market.
According to Gates, Microsoft is "satisfied with the number two position behind Sony and ahead of Nintendo in the global console market". Nintendo might question this - if Microsoft is ahead, it's to little to be worth mentioning. Let's say "joint second" then.
But what to make of the Gates spiel about third party support - "software developers have historically only supported the top two platforms"? Even if Nintendo sinks into third place, so what? Historically, the company has been the biggest developer for its own platform, anyway.
Gates promises continued support for the Japanese market, which is still in the doldrums despite the good performance of Dead or Alive Xtreme Beach Volleyball in the territory. "We knew it was going to be difficult, and we will continue to invest in the Xbox there," he said.
Will this yield the kind of software support that's needed to sell the Xbox to Japanese consumers and the legions of Japanese software fans in the USA and Europe? The jury is still out.