Overall, I think that right now, looking at it from a purely financial point of view, hacking the Xbox has to be considered as being just for the fun of it.
However, it's nice to know, too, that two or three years down the road, when the Xbox-2 is likely to come out, that there will be something that I can do with all of those Xboxes which will come onto the used market for $100... then $50.
Even so, while the capabilities of the Xbox are impressive, by the time they reach that price point, they'll probably occupy the same place that a Pentium-100 does today. With Linux, they'll make a tolerable router/switch/DSL box/etc. Or they'll make nifty devices to run a camera which keeps an eye on the coffee pot. *grin*
I can't really see the Xbox as a way to get Linux into every home, as a set-top, semi-generic "media" unit. But I can see that the folks at Lindows might use the information and experience they receive from the contest... to make an Xbox-like device, that could be that generic media unit. Time will tell.