You can buy, off the shelf, a Core i3, motherboard, hard drive, 4GB RAM and HD7770 for a similar amount to the top end Xbox 360 launched at, comparing UK prices for components to the UK Xbox 360 release price.
Of course, you then need an optical drive, case, PSU and some assembly, but cut down the prices for the above components from retail to OEM/semi customised, and it's not that out of reach that they could manage some pretty beefy hardware without it costing that much. Obviously they don't be using x86 components/etc, but that just gives you an idea what commercially available PC hardware might be able to be had for money not that much different to an Xbox.
Also, reading iSuppli cost numbers always makes me laugh, I don't know where they come up with this crap from, I really don't, otherwise I would have used some Xbox related numbers for comparison, but when iSuppli lists optical and hard drives for prices above retail at that time (I remember checking when the iSuppli reports were released and being astounded at their estimates), and an Xbox PSU costing $25 to make... you just can't take them seriously.