A triple core, hyper threaded 3.2 GHz CPU was "horribly weak" at the time? Yes, I know those advantages are counterbalanced for the 360's CPU by it being an in order processor, but it still hardly seems weak.
In-order with a crappy memory pipeline really is that bad. By Microsoft's numbers, you can expect 0.2IPC on each thread when reasonably optimized. For integer, you can get considerably more real throughput out of a single-core P4, with really a lot better programming model. For floats, it had no real desktop equivalent until Core 2 came out.
IMHO, the CPU was the major failing of the console. IBM wanted to sell MS a proper OoO core, they decided that they just couldn't get the throughput they felt they needed to rival what they thought Sony would have out of that, and so went with a trio of much simpler and crappier CPUs. Of course, Cell was a huge bust, and the "throughput monster" that MS got is nearly as pathetic.
There was a bout of in-order insanity going on in the industry at the time -- it seems we contract that every 10 years or so.
The 360 had last gen top of the line graphics (imagine buying a $400 PC with a Geforce GTX 580 in it. Yeah, not happening, but that's what the 360 did.)
Actually, thanks to unified shaders and the ROP bandwidth provided by the eDRAM, it had a GPU that was just plain better than the high end. You could not buy a PC GPU that was as good until 6 months later.
Memory wasn't so much of an issue because consoles didn't have huge memory overhead with Windows and could code directly to the hardware.
The memory overhead of Windows is vastly overstated. Roughly at launch day, top of the line PC titles could expect 1GB of main ram and 256MB of GPU ram from the medium-high end. You could use at least 800MB of that main ram without much problems. I know that the game devs I talked with felt heavily constrained by the memory capacity of the consoles in the first year, and it just got a lot worse from there.
Also, the 360 has an 10 MB eDRAM die to help make up for it.
The eDRAM does not really help memory capacity, but oh does it help memory bandwidth.
The PS3 is harder to compare because it uses a much different architecture, but the point is that the 360 and PS3 were comparable to all but the fastest PCs when they were released, and the faster ones probably cost 2 to 3 times more than the consoles.
I'd say 360 was very competitive when released, no question. However, PS3 doesn't get that easily. The GPU wasn't just underpowered, it was outdated on release, the CPU was a monstrosity, in a bad way, and the memory shortage was made a lot worse by split pools and huge reservation for the OS made by Sony.