I noticed while playing my friend's Xbox 360 that the lighting and particle effects were amazing, and similar to screenshots of games that utilize DirectX 10.

Since the OS in an Xbox is directly related to Windows Vista, which is the only retail system that can run DirectX 10 (No guys, Windows 7 isn't retail), does the Xbox 360 use DirectX 10 or a similar software?

No Directx 10 only works for computer games