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"While adding a Blu-ray drive to the Xbox 360 could make Microsoft more competitive with the PS3, it would also add further costs to the console. Microsoft could instead offer a Blu-ray drive as a plug-in peripheral."

This is most likely what's going to occur. Microsoft didn't include a HD-DVD drive into their console to begin with. I can't see them, at this late stage in the game, adding a Blu-ray player to the 360.

I see this as a win win situation for Sony. More Blu-ray players getting sold, more attention brought to the HD market, and many 360 gamers looking at a peripheral that will probably cost in the region of $300, might well be tempted to get a PS3 instead.