According to The Guardian, an interview with former XBOX Exec Peter Moore has revealed that putting a hard drive in the original XBOX is what lead to its downfall.
The hard drive in every Xbox killed us; we we're still selling it at
$199 and the hard drive was like $70. That's why we prematurely left
the original Xbox, because the more we were selling there was still
great demand it was killing us, and there was no way to bring the
price down. So in the end we determined at around the 25 million unit
mark that we just needed to slow this thing down and just not sell any
more, and move to the 360 as quickly as we possibly could. And to this
day people still believe we left the Xbox too early but it was purely
for financial purposes.