You're forgetting Xbox Series Y

I actually agree with not having a system in-between "S" and "X".  For most people I think a Series S is 80% of the experience of the Series X, especially when viewed across the room, and especially on a less than huge TV.  But the rumours are the rumours, so I approached them as I heard them.  :)

Given that the Series S was promoted as a 1440p@30 (at best) machine, if they do create an in-between SKU they could promote it as a 1440p@60 or 1440p@120 machine.  But I wouldn't encourage that, personally.  As others have said, just keep cost-reducing and/or shrinking and/or adding storage to the Series S.

As for cast-off chips that nonetheless have some functionality, I wonder if they'd have enough of them for a mid-grade system?  If anything, they might use them in xCloud servers for less-demanding games.

Ah, that sound was the joke whooshing over my head.  :)

An optical drive would be an interesting counter-point to the disc-less PS5 Digital Edition.  But it would work against it being so darn small.  But if it were an S2 or an S3, and the disc-less Series S still existed, that could be a winner actually.  Nice idea.

The main downside being that Microsoft doesn't want you to buy discs anymore, they want you to buy digitally (and especially to subscribe to Game Pass).  One of the reasons the rumours have them doing an enhanced Series S is that the Game Pass attach rate is better on the Series S than the Series X, after all.

But that's not a reason not to do it, IMO, if it gives them a competitive advantage.  So like I say, I like the idea.

I do to, but it depends on what was being asked based on what MS and its customers want. If they're saying seems like they may want more performance overall in the XBSS, then adding a $400 SKU makes sense. If they don't care about performance much, then ya, price reduction is definitely priority.

With the chip shortage making it unlikely price drops will come anytime soon, then best bet when it comes to the clear storage concern, is bundle more storage however MS wants to do it. There's plenty of ways they could, but the most important would be to keep the cost below $400 because a direct price comparison with PS5 DE wouldn't play out well for an XBSS storage bundle. An XBSS + 512GB EXP SSD bundle for $379 would be intriguing for example.

Even if you added an ODD and made the internal SSD 1TB, XBSS2 would never work at $400. Maybe $350, maybe. You'd have to considerably beef up performance overall to give $400 a chance against PS5 DE.

And the Xbox Series Ain't Nothing But A Heartache

Just call it the Series Sex

Bigger internal drives have been a very common thing on the consoles with the passing of years and well with more games available more space is needed to keep them. So they could still have the series S with 1Tb internal and sell well on the expansion.

True, yet Series S 500GB for $249 will sell more than Series 1tb for $299. It's the 'get in the door' machine. Price is the most important factor. And MS is already going to offer a cheaper 512GB expansion.

https://news.xbox.com/en-us/2021/10/21/new-seagate-storage-expansion-cards/

$140 for 512 GB
$220 for 1TB (current price at bestbuy)
$400 for 2Tb

So cheaper storage is already coming. I guess MS rather have you buy a cheaper Series S with the cheaper storage expansion option. Next to controllers, the margins are on those expansion cards.