it's an insane concept that would never happen, but is 100% legal and technically doable:
so first of all, for PR reasons, we call it the Xbox 2, and because the concept behind it is that you create an Xbox that takes, what fans of the original liked and what the community around the original Xbox has done with the system over the years, to the next level. yes, we are going the nostalgia route.
this starts with exclusivity deals for sequels/reboots of the most cult classic titles of the original Xbox. Jet Set Radio 3, Crazy Taxi 4, Otogi 3, Dead or Alive etc. including a soft reboot of Halo called Halo 4. we don't give a shit if the name is confusing because we'll just act as if the old Halo 4 never happened, which is what it deserves.
secondly, what is the og Xbox known for these days? homebrew... even back when it was still in active production, I had friends that played PS1 games on their Xbox in ~2004
so we take that concept and run with it.
this means, the Xbox 2 ships with in-house (maybe created in cooperation with leading emu devs) PS1, PS2, PS3, Xbox, Xbox 360, PC Engine CD, Dreamcast, MegaCD and Saturn emulators, all of which can read original discs, and all of which will read games off of USB drives as well (wink wink).
for the controller, the black and white buttons are back as well. 1 due to nostalgia, and 2 because extra buttons are always nice to have... which is why it will also have 2 back paddles that are useable by devs and aren't just for rebinding other buttons... again, extra buttons are clearly needed these days, with how everything is double bound in every game now it seems.
lastly, it has to be the clearly most powerful system on the market. there can be no doubt about it.
this means we need Nvidia. and the recent Intel + Nvidia deal to create SoCs together actually makes this now a possibility.
a custom SoC that heavily leans on raytracing. raster performance will play second fiddle to raw rays per pixel and ray intersection throughput.
the system would be heavily subsidised to reach a price that actually feels like you're buying a console and not a high end PC, just like the good old days (some stealth nostalgia strategy right there).
but unlike the good old days, online MP will be 100% free.