I love rumors!!!..... don't you?... try this one.

[dnnc]

Microsoft Readying Blu-Ray For Xbox 360? (MSFT)

Dan Frommer | February 18, 2008 1:52 PM

Now that Sony's Blu-ray has beaten Toshiba's HD DVD in the next-gen DVD format war, HD DVD backers must figure out what's next. For Microsoft, that means figuring out how to integrate Blu-ray with the Xbox 360, which until now has been an HD DVD-only platform.

SmartHouse reports that Microsoft has already built a standalone, external Blu-ray player for the Xbox, which could go on sale within three months. If true, this means that Xbox owners could watch Blu-ray discs without buying a new set-top box, or worse, one of rival Sony's PS3s. What it doesn't mean: That Microsoft will build Blu-ray drives directly into the Xbox.

Why not? We can think of two reasons:

• Price: Blu-ray drives are pricey components that have made the PS3 a money loser for Sony (in the near-term, at least).
  
• Corporate focus: Unlike Sony, Microsoft hasn't bet its future on a disc format. Sony needs to push Blu-ray via PS3 in order to support other businesses. But ultimately, Microsoft is more interested in pushing digital movie downloads/rentals from its Xbox Live marketplace -- which doesn't require a DVD drive at all.

Update: Commenter Jason Unger points out that SmartHouse doesn't have the best reputation, so treat this as a rumor at best for now.