That is a given. Step outside of North America and PC ownership is a fraction of what it is here- and that is ignoring the miniscule slice of that pie that is capable of anything resembling high end gaming.
RIGHT NOW the overwhelming majority of PCs being sold are inferior to the XBox by a sizeable margin in terms of being able to game. The leader in the PC market for graphics is Intel, and they don't have a chip that is close to competitive with the NV2A- not remotely close. PC gaming is only doing close to as well as it is because of the spillover from consoles.
You assume that people would take the money they spent on console games and instead spend that on PC gaming, furthermore you assume that if this were done it would lead to better development on the PC. What about the cost of maintaing a rig?
As you are touting the superiority or PC hardware then one must assume at the outside you are talking about people building a new rig every other year. If that is the case, and they build their own and shop around, they are dropping ~$1,000 every other year in hardware. So we figure it out to $500 a year. Compare that to console hardware costs which I'll stretch out and spot you to $500 for each console(mem cards, remotes, extra controllers- a new TV every other gen). In a five year console generation you are going to drop $2,000 dollars in hardware for your PC and $1500(incredibly overstated, but we'll go with it) on console hardware.
You have $500 to spend on games going the console route before you hit the hardware costs of the PC. If we look at the real world numbers, the overwhelming majority of people buy consoles when they are $150 or less and end up spending well under $300 per console on hardware(not to mention most homes own two maximum) putting real world hardware costs closer to $600 per gen and $1,400- twenty eight games worth- of gaming funds.
Now, if everyone moved from console gaming to PC gaming it seems to me that there would be a he!l of a lot less money being poured into publishers and developers coffers no matter how you looked at it. The industry at large would lose out. Game sales drive the industry.
Seeing as the biggest thing current PCs have over current consoles is resolution, it makes little sense to buy a next-gen console when they come out unless you already own, or plan to purchase, an HDTV.
Wal-Mart sells HDTVs now for under $600(27" Philips)- if you want to consider that then you are forced to factor in a comparable display for PCs. How much is a 27" monitor going for these days?
As a general point- you realize that currently you are arguing for PCs against an Intel employee and the most vocal supporter of PC 3D technology on these forums(and have been for many years)? You are also talking to two of the bigger PC gamers on these boards. The difference is we experience both sides of the fence all the time and can speak with considerable authority about both sides of the fence- something you seem incapable of doing. For that matter, I've yet to see you display that you can speak with authority about the PC gaming aspect except spitting out over and over that the PC can do whatever the consoles can(which, if modded the reverse can also be said).