Ed Fries, Microsoft's head of first-party development for both Xbox and PC, has reiterated in an interview that the company plans to hit retail with Xbox's successor before the launch of the next PlayStation.
Speaking in Japan to the Hihon Kezai Shimbun, Fries confirmed that Xbox 2 - or whatever it ends up being dubbed - is currently in the first stages of development and would indeed hit before PlayStation 3, now expected in 2005.
Source: Computer & Videogames.