Speaking to the Mainichi, Takashi Sensui, General Manager Xbox Japan, has suggested that Microsoft currently have no plans to incorporate the forthcoming HD-DVD drive internally within Xbox 360 units, but did suggest that this could be a possibility if consumers show enough demand.
Obviously Microsoft are in a position where they'll wait and see how next-generation DVD pans out before making such a decision; who will win between HD-DVD and Blu-ray; whether such a feature warrants the exorbitant price that Sony are demanding for the PlayStation3 and if gamers are really concerned about such a feature.