I always thought the assumption was that since Resident Evil had not been made many times for Nintendo's last system (N64), it was not rehashed out for Nintendo, so they thought that by switching systems, they could sell more of all the games (RE1, RE2, RE3, RE:CV) rather than make a remake for an audience who has already played it. This being the assumption that the PS2 and NGC audiences are different. I suspect the reason they did not choose X-Box is because of Japanese performance.
That said, I think there might be some truth to the MS is looking to buy Capcom rumor. Not that they will. MS looked at Nintendo a couple of years ago. MS looked at Sega twice, as far as I know, to buy. MS looks at these companies because they desperately need the Japanese marketshare. Netting Capcom might be a good first step towards winning some of that thus-far non-existent Japanese support.
Anyone who talks about monopolizing the gaming industry should look at Sony.
They still sell more PS2's than the X-Box and GC combined each week and their marketshare is already way ahead. So who is monopolizing again? Who bought exclusive rights to GTA? Who bought exclusive rights to MGS2 for a year? I'm sorry. MS isn't the big bad monopolizer here. Its Sony.
Buying Capcom would mean that MS would not only get an arcade division, a respected Japanese developer, but they would get Devil May Cry, Resident Evil, Ominushu, Steel Battalion (the rest of them), Street Fighter series, Vs games, Dino Crisis series, Mega Man, among others. Capcom has never struck me as the most honorable of the honorable Japanese game companies, though. They dumped Sony to go to Nintendo with Resident Evil series, probably thumbing their noses up at Sony in the process. Not exactly tit for tat that.
I doubt, though, that MS will buy Square. Sony's got too much invested in that one and too much invested in the relationship between them. Like Kingdom Hearts, for instance.
I would look for MS to buy developers in financial uncertainty like Blizzard/Sierra (Vivendi's troubles), Capcom, Sega, or Infrogram/Atari. Imagine MS buying Blizzard. What a coup that would be for MS. If stupid Vivendi wasn't losing money out their pores now, then Blizz wouldn't be a needless asset for Vivendi.