But it really was. Sega and Microsoft worked closely together or why do you think they implented the Windows CE option? Also all Sega arcades afterwards shipped with Xbox hardware.
Windows CE was ported to a lot of processor architectures at that time. Its architecture is quite different from the Windows NT line. To quote Wikipedia on this
"Unlike Windows Embedded Standard, which is based on Windows NT, Windows Embedded Compact uses a different hybrid kernel."
I am also pretty sure that Windows CE's architecture is quite different from the OS running on the XBox, but cannot give a quotable source on this. At least for the Xbox 360 and XBox One, I am pretty sure that I have read that their kernel is actually not so dissimilar from the kernel used in the NT line. The difference between the Windows NT line and the XBox 360/One OS rather lies in the software running above the kernel.
You can quote me, as I've gotten down and dirty with the Xbox ( https://github.com/monocasa/xbvm ), and have written board support packages for CE for work.
The OG Xbox kernel is an extremely heavily stripped down and modified Win2k kernel. No support for user mode, multiple address spaces, or more than one running process. No win32 in the kernel. USB, sound, and the vast majority of the graphics driver are statically linked into the process executable.
There was a rudimentary os when you boot without gd-rom. It allowed you to set settings, manage memory cards etc I suspect it was loaded just in case where there were no os on the gdrom inserted otherwise the system will boot on the gdrom os. Edit : video link https://m.youtube.com/watch?v=5L9p_Bq_hFk
