I think you are thinking of the PS3 because M$ actually slammed Sony in the beginning for those statements.
I barely know anything about the PS3; I've never given it more than cursory attention at best. As far back as I can recall, Microsoft has talked about expanding the Xbox 360 from gaming as the core experience to a more integral part of a home entertainment setup. After all, Microsoft has consistently referred to the Xbox 360 as a "video game and entertainment system," while having referred to the original Xbox simply as "a video game system." A lot of the progress towards Microsoft's goal has been occurring slowly, but that's to be expected with all the different deals that would need to be in place for what Microsoft has maintained for years that it intends. The first major push towards becoming a digital media hub in living rooms was arguably 2007, but it was a goal Microsoft had made clear prior to that point.
[...] i dont see any indication of the gaming side of the xbox getting the short end of the stick.
I agree. I'm more than satisfied with my Xbox 360, and I'd be even more happy if Microsoft's hopes with this cable television concept comes to fruition