I am a HUGE fan of the 360 but I'm not sure what all you want in a Entertainment System so I'll just tell you what my girlfriend and I do with ours.
First and foremost... You need an Xbox, High Speed internet, HD TV and an Xbox LIVE gold account ($50 a year), definitely HD Cables which usually cost extra. To do what I do and have what I have from scratch will cost a lot of money up front so don't take this challenge lightly!
1: I play FPS like Halo 3, Cod, GoW, Etc. Its what the Xbox was designed for IMO!
2: I use it for Netflix. I'd estimate that over half of Netflix's media is available via streaming HD video over Xbox Live. To watch Netflix you need a Gold Live account and you need to subscribe to netflix (plans start at $9 a month). Anyway, of all the things an Xbox does I'm most excited to tell people about Netflix as everything else is expected and is done on every other console. Netflix has its own "app" if you will where you can browse movies by type. Scrolling through you'll see Menu Titles like: New Release, Recommened for You, Your Instant Queue (A list of movies that you've already "Added" to watch later), Recently Watched, Drama, Action, Comedy, Sci-Fi, Romance, Foreign, Independent, Documentary etc.
You can add/watch movies, TV Shows, Whole TV series... PBS Documentaries, The History Channel... for Halloween there was a Zombie Menu where I found a plethora of good and bad Zombie movies.
Anyway, With each and every title you watch you can rate it out of 5 stars. If you like a particular movie Netflix will recommend other movies of the same genre, featuring the same actor, or movies liked by people who share your overall taste in entertainment... the more titles you rate the better it gets and sensing your likes and dislikes. Netflix eventually gives titles you haven't seen yet a rating it expects you to give it. Its pretty spot on.
SO, you liked the Movie "Lock, Stock, and Two Smoking Barrels" and rated it 5 stars... Netflix will recommend "Snatch" and give it a Best Guess rating of 4.5 stars. And again, depending on your internet, its usually in HD.
3: I play RPGs like Oblivion, Fallout or Dragon Age. The graphics are good and there is no "Memory Lag" that I always used to feel when I played these on any standard Desktop or Laptop.
4: Free Demos. I have a 60GB hard drive with which to download dozens of free game demos before I commit to buying the full $60+ game... You usually get about 5% of the full game in a few actual levels, customized for the Demo, extra content like pictures, trailers, or Themes (which are like a Computers Desktop Pic) for free and can decide right away if I'm going to purchase the game or not.
5: Arcade games and Games on Demand. Download full games and mini arcade games or useless apps for $1-$15 straight to your Hard Drive... I recently downloaded a Tower Defense Game, Uno, and Galaga (yes the original Galaga) that was remastered to not look like crap on 1080p (which is what I have going to my LCD) They are games that I could probably play online for free but I save the cost of owning a computer and i get to play them while reclining so win/win really. One of the sillier things I've seen is a scrolling LED display that you program to say whatever you want... the time, "Newman Sucks" or whatever.
I just recently gave my girlfriend her own Xbox Live Gold account so that she can have her own custom Xbox experience... I already own 2 xboxes and I take 1 to work with me so is essence we each get our own xbox. Anyway, It suprises me how differently she sees and uses the Xbox compared to me. She has downloaded her own themes (desktop pics yet so much more), uses the rudimentary facebook app (sad i know), and just downloaded Diner Dash. She has also set up her own Last.fm account so she can listen to Lady GaGa and Queen while doing things around the apartment. Her favorite things to do via Xbox is Play Uno, Listen to music, and watch an endless slideshow of her, her friends, and our pugs facebook pictures. She's made her own avatar and purchased a pug that her avatar interacts with.
I've dabbled with connecting a PC to my Xbox and its really easy but I haven't really used its features... just moved some music to my Xbox.
Lets see... Total Costs
Xbox (Arcade): $200
Xbox Live Gold account: For one Year $50
Extra Xbox Controller:$40
HD Cables: (I think... mine came with the xbox via ebay) $40
Better Hard Drive: (cheaper on Ebay) $90
Netflix Per Month: $9
With Taxes: $450+
If you have any more questions about the Xbox or need anymore details feel free to ask as I like to spread the word about how awesome the Xbox is!