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It's called a 360 because it was going up against the PS3 and Microsoft didn't want it to be the Xbox 2 as it would sound like it was a generation behind the Playstation. They came up with 360 as it was also the machine that would come full circle for Microsoft as the original console was sold as an expeirment to get into the console market and this was the machine that had the true potential to take on Sony and Nintendo (at least that's what they thought at the time).
Microsoft called their console the Xbox because it's development kit is based around the same DirectX APIs that Windows uses (makes for easier game conversion to Windows too) and Xbox sounded like a cool name.
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