they did it for the IP rights
edit: what i mean by that is that intel owned the IP rights and probably the fab rights, and would not let MS shrink and repackage the processor over the life of the system, like all other video game machines do. this meant that the cost of the xbox was probably the same throughout its life. the graphics hardware was done the same way, iirc.
going to PPC, IBM doesn't mind licensing out the IP and allowing partners to shrink and repackage the technology. eventually, near the end of xbox360's life it is likely that the ppc cores and the graphics core will be on the same chip.
IBM is the real winner in this next console round... they provide the CPU for all 3 systems