it will play some old games. Don't think there is an official list though. Last I heard, the plan was to start with more popular games and add more later via xbox live and cover disks.
I believe the most recent "plan" on backwards compatibility was that old xbox games would be re-compiled for xbox360 - i.e. you couldn't just buy an xbox game (or pull one from your library), you have to buy a "remastered" version. Which would be total pants.
But the last I heard was that they'd even given up on that and admitted that backwards compatibility wouldn't be there.
My suspicion is that your old xbox games will NOT work straight on xbox360, BUT that you can buy / collect remastered versions online and download them directly.
Which would be handy, given the rumours of a complete dearth of true launch software. M$ references to 10s of titles being available in the "launch window" is thought to refer to the first 6 MONTHS after launch, not the first day of sale, or even weeks before xmas. I will not be surprised in the least if the number of games available pre-Christmas is in the single figures. Which isn't necessarily bad - it's all that most other console lauches have ever had...
But in all, I don't care much for xbox360 or PS3. Revolution excites me the most, assuming the controller works (a big assumption methinks).