It just seems odd that only one will be supported on the XBox 360, while my older ATi Radeon 9800 supports four...
XNA Framework
Well the XBox360 graphics processor handles render targets in a very different way than PC graphics processor. It have an own dedicated very fast block of EDRAM for this purpose. Therefore it would be tricky to offer more than one target in a PC compatible way.
XNA GSE version 1 only supports one render target on Xbox 360. As noted, this is due to the complexities of Xbox 360's EDRAM. We have some ideas on how to support more than one simultaneous render target in the future but it requires a bit of work (which we felt was less important than other work we did for v1).
Paul