Rumors are spreading around the Internet that Microsoft is planning to announce a Hulu application for the Xbox 360 as one of their big E3 surprises. While we can't confirm whether that'll actually happen, here's what we can confirm: a Hulu application for the Xbox 360 definitely exists. A source close to Microsoft told 1UP that Microsoft does have the software for a Hulu application on the 360 fully up and running -- the only thing holding them back now are rights issues to Hulu programming.
The initial rumor was floated by Gear Live, who reported that their own source said Microsoft will announce a Hulu service on 360 at E3, which would require a subscription fee separate from an Xbox Live subscription (just like Netflix instant streaming on 360). Again, we can't confirm whether the announcement is set in stone. But if does pop up in Microsoft's E3 press conference, it'll only be because Microsoft was able to work out the licensing issues behind the scenes.