According to reports from Far Eastern sources -- and it could even arrive next year
According to DigiTimes, Microsoft is in the process of designing a version of the Xbox 360 with a built-in HD-DVD drive.
The Taiwanese publication cites "sources in Taiwan's optical disc drive (ODD) industry" and says that Microsoft has started designing the system and is in the process of selecting manufacturers for the internal drive. And it reckons that the HD-DVD Xbox 360 - with vastly increased capacity for games content - could arrive as early as next year, although MS has always previously denied the HD-DVD drive would would be used for games.
Bearing in mind Sony's total commitment to Blu-ray, the move would place Microsoft even more firmly at loggerheads with the Japanese consumer electronics giant. But it would also generate a vast amount of potential for consumer confusion - with two versions of the Xbox 360 already on sale, and an external HD-DVD drive for the machine due to go on sale before Christmas. Microsoft has always said that it will respond to consumer demand as far as the rival HD movie formats are concerned, and that it would not tie itself to one or the other until a clear winner emerges, so it would mark a policy U-turn for the company.