@PastAmigaOwner: All the Macs I've taken apart have HUGE heatsinks, though. The G3 I used to have at work has a heatsink about 18 square inches, with a 120mm case fan blowing on it. That's one advantage of being able to build custom cases. The G5 Mac also has a case fan in front of each CPU heatsink. That's hardly passive cooling. Maybe Apple is really pushing these processors to their limit?
While I agree with you that PPCs definitely do generate some significant heat, I have a dual G4 PowerMac (with just normal sized heat sinks), a 1.25Ghz G4 PowerBook with passive cooling only (unless it gets really hot, then the fan kicks in), and a Dual 2Ghz PowerMac G5. While the G5 certainly does have its fair share of active cooling (9 fans), the fans spin at very low RPMs and this is the quitest computer I've ever owned.
Bottom line is that there are numerous PPC processors that could fit into the form factor of game machine without cooling issues. Apple is looking at using liquid cooling systems to get a G5 into a PowerBook and Sega has done this before with the Dreamcast, so it's not out of the question.