I dont think you really need to go that crazy to beat a xbox 360. I think a 7800gtx, 2gbs ram and a x2 4400+ would be fine. Some of the xbox 360's later games would be better but then you could just get another 7800gtx for sli.
The reason why the Xbox360 graphics look sooo much better is because a TV has very low resolution. Think less than 800x600. Now, if you play lets say CS:S on that setting, and crank the AA and AF, it should look pretty nicely. But it you play CS:S at 1600x1200, and crank the AA and AF, it will look better than the Xbox360.
Wow guys thanks for all the info.. it looks like it would cost alot of $$$ to beat a Xbox.. lhuser Thanks for the link.. quick question tho Intel.. or AMD..?? What would handle the games more..? And also i know it cost alot but is it worth getting water cooled.. i seen a video of someone installing one in a system.