Simply using it as an example of what would be required, keep in mind that with the PS2, even in original form, a lot of 'spare' spare existed within the box. The slim-line PS2 clearly showed that, change the drive and you have a small set of components.
MS seem to have dropped all support for the original Xbox and to enter the handheld market with something that does no more than the DS or PSP would be a foolish move. Keep in mind just how much money the gaming side of Microsoft is loosing (they have never turned a profit), the last thing they need is something else to bleed money.
In the 360 side of things, well that as likely as a handheld PS3 within the next two years, a decade from now maybe, but not in the short term (and that's what the portable 360 I posted illustrates - how far we are currently from this).
Regards
Scaff