The most surprising part of today's conversation with Bill Gates was when he not only fessed up to the Xbox being a glorified computer, something Microsoft has been denying since 1.0 launched, but said that Microsoft wouldn't have gotten into gaming if it was only ever going to be about the gaming.

"The reason we got into Xbox was not just for gaming," he said. "It's a general purpose computer. In terms of the first generation in particular, where we were so known as a PC company, the need to make clear how we were prioritizing the needs of demanding gamers, that was super important.

"We wouldn't have done it if it was just a gaming device," he said. "We wouldn't have gone into the category at all. It was strategically getting into the living room. This is not some big secret, Sony says the same things."

Gates added that before Microsoft could talk about that though, they had to establish their system as being gaming centric, earn themselves gaming cred. Now that they have established the brand, Gates said, Microsoft feels more confident in branching out with the console.

This year, he said, is a "huge milestone" for the Xbox, because it has gone from a gaming device to something much more.

"When you talk about convergence, its the first device you can say that really say this is convergence this is real," he said.

Despite Microsoft's attention to consoles, Gates and the company haven't and won't give up on the PC gaming market, he said.

The two, Gates believe, can co-exist.

"I can stick up for both the PC model where you don't pay any royalties, you can introduce games without asking anybody, that's a great thing. And you will see a lot of innovation," he said. "PC gaming is where you will see that really cutting edge high-end type stuff happening. As the Xbox gets cheaper and cheaper some very cool things happen there."

"But both of these models, even in the living room are still very, I think very important. The kind of openness and variety of the PC, and then the kind of very inexpensive deep integration that Xbox represents. Really bootstrapping off of video gaming but being far more than that."