Self-described Australian "lifestyle technology guide" Smarthouse is citing "a senior Toshiba executive in Singapore" as saying that Microsoft and Toshiba are working on a new Xbox 360 with a built-in HD DVD drive. "An Xbox with a built in HD DVD drive is critical. They and we are working on it," the unnamed executive told the site, adding that the system might have Toshiba branding rather than Microsoft (Panasonic Q, anyone?). As if that weren't enough, the article also hints at the possibility of wireless networking, an HDTV tuner and and MP3 player dock for the super-system, which would at the point probably have the MSRP of a small house.

This isn't the first time that rumors of an internal HD DVD drive for the 360 have leaked out, and it's just as hard to give them much credence now. The HD DVD-free system is soundly beating the Blu-ray equipped PS3 in sales and the $179 external drive is already serving the smallish segment market that wants high-def movies. Then again, with Blu-ray movies threatening to run away with the high-def movie crown and developers saying additional storage space is a must, maybe Microsoft is finally ready to make a strong move toward the format.

Or maybe not. According to Smarthouse, the new device won't be announced until late 2008 or even the January 2009 CES. We're not holding our breath but we're not exactly ignoring the possibility either.