As LockerK pointed out, Dreamcast had a lot of the connectivity features you attribute to Xbox, and the NES and Genesis before it, although not necessarily in the NA market.
But, I suppose you and I define “innovation” differently. What you call innovation for the original Xbox, I call trying to turn an existing device, the PC, into a console. X86 processor, Nvidia graphics, optical drive, hard drive, USB connections. And it didn’t work. MS lost a shitload of money on it, and discontinued support for it as soon as it possibly could (hey, a previosly un-identified innovation! abandoning device support to force-upgrade your customers) when the 360 was released. Was shoving a DRM-locked mini-PC into the market technically a “new” idea? I suppose, but I would stop short of saying that every untried idea is an innovation. Sometimes it’s just an unexplored bad idea.
Then MS “innovated” by pairing the least reliable console ever released with a 90-day warranty. For MS, quality is job 2.1, etc.
To me, an innovation is different, it’s not just technically new, it’s additive. It’s not just iteration, it’s expansion. Adding analong control to the console controller was an innovation so strong that Sony and Sega were forced to catch up. While I like the Xbox S/360 controller a lot, it’s basically a mash-up of the Dreamcast and Dual Shock. An iteration rather than an innovation.
Not to say that MS was all bad. They were first to the console space with a digital marketplace and they made a lot of good decisions with XBLA in design and in mandating a playable demo for all releases. Then, they made a lot of poor ones such as locking out small developers, slotting releases, and forcing their online customers to buy blocks of points that didn’t match up with the market prices, forcing the customer base to pay now (almost interest-free loans, expcept for the non-refundability) for future services. That too, was a technically new “innovation.” But then, fucking the customer is far from a new idea, just one that MS keeps iterating on. : P