Longhorn is morbidly obese
Microsoft Watch: Longhorn to Steal Limelight at WinHEC (emphasis added)
I saw these specs on MacRumors.com, and I thought they were being sarcastic, so I clicked through to this story, and, well there they are again!
2 gigs of RAM and a terabyte of storage? If you take all of the computers in my office you'll get a little more than 2 GB of RAM, but you don't get anywhere near a terabyte of storage. All of this CPU and RAM and storage is there to solve what problem? Only hard core gamers are going to have systems that beefy by 2006... and Microsoft still hasn't managed to get as many people upgraded to XP as they'd hoped.
This reminds me of OS/2 Warp, pundits said nobody could use it because you needed at least 8 MB of RAM, more realistically 16 MB or 32 MB to run it, and just about nobody has a machine with those specs. 4 MB was the norm then, and really good machines had 8 MB. Having 16 MB or 32 MB in a home computer was very rare at the time.
Update: Greg found a story on Ars Technica discussing these requirements. The good news is that those requirements are definitely not the "minimum" requirements. Then again, when you look at the minimum requirements for PC games, you certainly wouldn't want to be the one playing that game on that minimum machine... so it could be that those requirements represent what you'd really want to have to get a decent experience.