If its true and an ARM arch is used, I wonder if it says anything about their next-gen system's hardware. Seems a bit strange to use ARM in between two PowerPC systems (assuming they stick with IBM) when it comes to backwards/forwards compatibility between platforms. I suppose this 'lite' system could just be a red headed stepchild, stop-gap product that they're willing to toss aside at a later date.
It's almost too obvious. The Xbox360 is a pretty impressive media platform. My parents bought one for the 1080p streaming video, Netflix and basic Kinect games. They've never picked up a controller I'm sure. With the Apple TV and Raspberry PI making home entertainment simple, compact and cheap, it seems natural to extend the Xbox brand to a more simple device to target those without an Xbox.