No wonder this is an HIFI forum so ppl have little or no experience of gaming

hyeah:
let me clarify some things for you
1. The XBox 360 is the right buy for you
2. The console which you have bought if is a jasper (as per the power supply you have quoted it is a jasper !!) has a inbuilt 256 MB of flash memory and is gud enough for the NXE interface which uses around 120 MB of space.
3. There are Software Modding solutions available namely Ixtreme which will not get you banned from XBOX live!!!
4. while getting a xbox modded take care of removing your warranty sticker with a hair drier and your sticker will come out without tearing guaranteeing you warranty replacement

hyeah:
4. lastly the playback of av via a network is great...and would be suitable on your lcd tv...
cheers and gud buy m8
Now I dont see the need for that first line. Even a Hifi forum such as ours can have gamers with experience. Granted they may be few, but that need not be an issue.
As to the best gaming proposition available, it very much depends on the kind of gaming the OP is looking for, the versatility that he is looking for in the console and a few other things such as initial cost and individual game disc cost etc.
The most versatile solution is the PS3. It is also the costliest by a margin. Considering that it adds up as a Blu Ray player and can even sport an operating system to operate as a low cost computer, it is a good deal for what it gives you. But given that the games are pretty costly in India (2.5K) and modding is not possible, it is an expensive solution all round.
The XBOX 360, in my opinion, has the widest range of games in all genres and is a very versatile gaming console. Unfortunately problems such as the Ring of death are very common and you would have to trust dealers on whether they are indeed selling the Jasper chip based XBOX. And I am partial to the XBOX controller. The buttons have the right depression range and the correct kind of feedback in my opinion. With the PS3, Sony have gone on the right track but there is still a way to go.
If you are into casual or party gaming or even wish to have a game console which is approachable for all family members you need not look further than the Nintendo Wii. Among consoles, this is the one which has that wow factor and the one that is the most fun after you open the box. The Wiimote (its unique controller) is the reason for the most part.
But with the least amount of graphics capability, this is not the console that a hardcore gamer would enjoy. At any rate not for a great length of time. I also have a problem with the Wiimote control being a bit too erratic for fast paced action games requiring accuracy and some nimble user input. Lastly actually moving your body and hands while playing video games is a fun idea, but it gets old easily.

I hope this does not put people off this console. It really is a fun machine, but it needs a group to get going. The other consoles can operate as one-man machines - longer than the Wii. But it is all down to personal preference. Here I have laid out my opinions and preferences.