But executives at Microsoft see video games as just the beginning. Xbox 360 is at the centre of a strategy that will eventually also tie in elements of Microsoft's new online initiative, called Windows Live, says company Chairman Bill Gates.

Gates said on Monday that he expected Xbox Live, Microsoft's service that allows gamers worldwide to play one another, to eventually work with a Microsoft instant messenger that was set to become part of Windows Live.

Microsoft already offers limited ways for people on Xbox Live to communicate with those on Microsoft's messaging software, but the new offering - not yet scheduled for release - would expand that significantly.

Gates said he was also expecting a new Xbox service called Microsoft Points, which lets people pre-pay for things such as virtual armour or other game-related items, to eventually work with Windows Live, so people could use a single account to pay for offerings there, too.

PC, Xbox complementary

"The PC and the Xbox are very complementary," Gates said.

"This is the home stretch. I've been here for 15 hours. I wouldn't wait in the rain for a Sega or a Nintendo"

Viktor Lundberg, 28,
from Manhattan

Stores around the country were selling the Xbox consoles to the first customers at midnight. In midtown Manhattan, 200 people lined up around a block in the rain outside a Best Buy store late on Monday.

"You gotta have it," said a drenched Michael Hamilton, 25, of Brooklyn, who had been waiting on line since 1.30am on Monday. Wearing a poncho that did little to keep him dry, Hamilton said, "Rain? It's only water."

"This is the home stretch. I've been here for 15 hours," said Viktor Lundberg, 28, of Manhattan. "I wouldn't wait in the rain for a Sega or a Nintendo."

Carlos Serrano, the store's "customer experience" manager, called the people inn line "crazy and dedicated".

"They are going to get this system right when they want it: 12:01," Serrano said.

Windows Live is Microsoft's newly launched effort to better compete with free, advertising-financed web services including email and search technology from competitors led by Google Incorporated and Yahoo Incorporated.

Analyst Rob Enderle said the move to more closely link Xbox Live with Windows Live intended to bolster loyalty to Microsoft products.

Tie stuff together

Microsoft "can tie that stuff together so that you as a customer become wedded to the Microsoft platform for everything you do," he said.

Microsoft also is attempting to more closely tie Xbox 360 to the rest of its universe by trying to make it a conduit for other entertainment activities such as watching high-definition TV, looking at family photos and listening to music.

Xbox 360 can do some of those tasks itself, and it also can function as an "extender" that links to a PC running Microsoft's entertainment-centric Windows XP Media Centre Edition.

"In the living room itself, Xbox 360 is our centrepiece and a product that redefines what goes on there," Gates said.

Bill Gates says the PC and the
Xbox are complementary

Microsoft's major console rival, Sony Corporation's PlayStation 3, is expected also to offer alluring digital entertainment capabilities when it debuts next year.

With the new Xbox system, Microsoft is also significantly expanding what people can do - and buy - from Xbox Live itself.

Gates said one big bet was that games companies would use Xbox Live to sell incremental upgrades and additions to existing games, thus extending a game's life.

Hi-tech living room

Analyst Matt Rosoff with independent researchers Directions on Microsoft said efforts to sell game add-ons through Xbox Live were probably more likely to immediately meet success than the grander plans to become a home entertainment hub.

Microsoft - and Gates in particular - have long touted the idea of the high-tech living room and den, but the concept is still too geeky for most people, Rosoff said.

While Gates may spend lots of time thinking about how important Xbox is to his corporate strategy, the Microsoft co-founder said he did not have much time to play the game system himself.

"I'm not a heavy gamer, I'm a light gamer - something to do with my job," Gates said on Tuesday. "... The people on team can all kill me within about 60 seconds on Halo, so I try and avoid them."