With the recent announcement of the Xbox 360, there are numerous stories with regards to backwards compatibility. "Will the 360 be compatibile with Xbox [original] games?"
The hardware should certainly be able to do it, given Microsoft's ownership of Virtual PC. The original Xbox has a 733 Mhz processor in it. The 360 has *three* processors all cranking at 3.2 Ghz. Emulation of the basic code shouldn't be a problem. The harder part will be the emulation of the old hardware.
Game developers are always going "around the system" to crank the last few cycles. I'm not familiar with Xbox development, but if game devs are doing this today, then it will certainly make it more difficult for MSFT to emulate the old box at acceptable speeds. But: MSFT has some bright peeps. And there is enough hardware in the 360. If they want to, I think the 360 can emulate the old xbox, whether or not people go around the system.
But does Microsoft care? Consider: if they don't make games compatible, then the original Xbox will have a longer lifetime [as people continue to buy the Xbox for their fav games]. With compatibility, the Xbox *might* die off in favor of the 360 [but price is a big issue]. But the PS2 versus PS1 showed us that even with compatibility, people still bought the PS1. Freaks, yes, but the market doesn't really lie. The PS1 continues to sell very well. It has a huge library, the games and the console are cheap, so families are snapping it up.
Blah blah blah. All so much speculation. If compat exists, then people will buy the 360 and be done with it. If there isn't compat, then a choice will come up: buy the more expensive 360 and its smaller game library, or buy the original? Of course, there is a small subset that will have both, but not everybody has that kind of expendable income.
Well. Crap. So what am I saying? Not a lot. Mostly "wait and see". There are a lot of considerations for backwards compatibility, and MSFT could come out on either side. Don't get your panties in a bunch... just hang in there to see what happens.