As Rob and others have pointed out, there are rumors that XBox 2 won’t be backwards-compatible – that it won’t play games from the original. If this is true, would be a immensely stupid mistake.
If none of my old games will work, and I’ve got to start over when I get a new console, what’s the impetus to stay with the Xbox platform? There is none. The stack of games already sitting on the shelf is the only “loyalty” many people feel to a game console maker. This is what killed Nintendo in the console market, that every time they came out with a new box all the old games were left behind. (Their handheld group did things right – my GameBoy Advance/SP will play GBA, GameBoy Color and even most games made for the original GameBoy.)
Sony’s just looking for Microsoft to make a big mistake and this would be it.
However… note that the folks at Microsoft aren’t usually that stupid. There’s been no official announcement, so I suspect that these stories are nothing more than pulp fiction. I know that there are ‘softies thinking “Xbox fans are smart enough to distinguish truth from sensational reporting,” but with the number of publications spreading these rumors it would be a good idea for MS to make some sort of official statement and throw water on this smoldering pile of embers.
much later: check out the Xbox 360 Backward Compatibility FAQ.