The Xbox is not a bad system by any measure... I can remember the game selection on my PS2 6 months after launch. It seems as though the only PS2 game I though was any good was Midnight Club. *SHUDDER*. Looking back, Fantavision was pretty good, but it wasn't worth the $40 asking price.
The Xbox is off to a good start. Having it be an MP3 player kicks ass too, even if you do have to rip all of your MP3s on it. It's DVD playing facilities are far superior to the PS2s. Not having to hold down the FF button to continuously FF is awesome after 2 years of the way the PS2 does it.
The way I look at it is, buy whichever system has the game makes you want on it. Xbox is going to have more Sega, period. Sony has Square, Namco (Currently, that might change), and a few others. If you want to play Time Crisis II, the only way to go is PS2. If you want JSRF or Robotech, get an Xbox.
People get way too worked up over video game consoles. Personally, I say buy em both.