Source: Taiwanese IT trade site Digitimes.

　　What we heard: In the wake of Toshiba's exit from the high-definition video playback format wars, Microsoft was quick to assume an aloof attitude toward the demise of its chosen HD standard, saying that it would ultimately be games that would determine the winner in the console arena. Following conflicting reports from Microsoft execs saying it was both unwilling to remove options of a BD-equipped Xbox 360 from the table and that no discussions of such an eventuality with the Blu-ray Association were occurring, the hardware maker further distanced itself from the external HD-player spectrum altogether, saying that HD video distributed through the Xbox Live Marketplace was its primary focus.

　　With the above conversation playing out over the course of February and March, speculation of a Blu-ray-equipped Xbox 360 returns today like a sour April Fools' Day prank. Taiwanese IT news outlet Digitimes reports industry sources as saying that Taiwan-based Lite-On has begun manufacturing Blu-ray Disc drives for use in the Xbox 360. According to Digitimes, the addition of a Blu-ray player to Microsoft's console may be part of a larger redesign slated to be rolled out later this year.

　　"Lite-On's shipments of the BD ROMs to Microsoft will start in the second half of 2008, the sources added," reads the report. "Power-supply makers also revealed that while the present Xbox 360 uses a 210-watt power supply, the next-generation game console will use a 170-watt power supply in order to reduce production cost and the size of the device, according to the sources." Digitimes also notes that Lite-On is one of several suppliers of the Xbox 360's internal DVD drive.

　　Digitimes' track record in predicting Microsoft's next hardware move isn't flawless. The all-things semiconductor, electronics, computer, and communications trade site claimed in 2006 that Microsoft was seeking out Taiwanese manufacturing partners to begin building an HD DVD-equipped Xbox 360, with the new SKU expected to begin shipping as early as the first half of 2007. Obviously, for myriad reasons, that didn't come to pass. However, today's report does stand on more solid ground than the news outlet's previous claim. Specifically, the claim says that Microsoft has already found a partner in Lite-On, and the Taiwanese manufacturer is already in the business of making Blu-ray drives and burners.

　　Microsoft appears to be at an HD crossroads of sorts for the Xbox 360, with one path leading to the traditional distribution model of tangible discs and the other charting the still largely unproven territory of digital distribution. However, unlike Sony, Microsoft's expertise lies in software and not electronics, and the company has thus far signaled its intent to continue to forgo integration of a new device into its already-troubled hardware. Microsoft opted not to include the failed HD DVD drive in its original SKU and has on numerous occasions said that it has no plans to divide its user base by releasing game content on an expanded-capacity disc.

　　Further, speculation abounds that the console maker is in discussions with online movie-rental kingpin Netflix to further subsidize its already substantial film and TV offerings available through the Xbox Live Marketplace. The most recent reports supporting such a move come from Netflix's query to its members as to whether they would be interested in streaming movies from an Xbox 360.

　　The official story: [UPDATE] While the Xbox 360 maker often falls back on its tried-and-true "Microsoft does not comment on rumors or speculation" mantra, the hardware giant will, on occasion, blow certain rumors out of the water when it sees fit. Today's rumor gristle apparently warrants such a response, as the publisher today told GameSpot, "Light-On is not manufacturing Blu-ray drives for Xbox 360. As we have stated, games are what are driving consumers to purchase game consoles and we remain focused on providing the largest library of blockbuster games available. For our customers who want a premium movie experience we offer the largest library of on-demand HD content available and the ability to play back DVDs in high definition."

　　Bogus or not bogus?: Bogus that Light-On is making Blu-ray drives for the Xbox 360. Still, Microsoft's carefully worded response leaves the door open for some other manufacturer to be involved in the project. However it turns out, it seems clear that a Blu-ray drive won't be a big selling point for the system, and it won't be used for gaming.