http://www.tgdaily.com/content/view/37376/135/

"A more dramatic and perhaps visible change will happen next year: TSMC plans to begin producing the Valhalla chip, which will be the foundation of the mid-cycle refresh of the Xbox 360, thus called ‘Xbox 2.5’ or simply ‘Xbox 540’ (360+180), in fall of 2009. We learned that this new chip is apparently much more than a die-shrink and end up as a system-on-a-chip design. This change is likely to enable to redesign the Xbox 360 casing and go towards a slim-design, much like what Sony did with the Gen1 and Gen2 PS2. We believe that TSMC will use a 45 nm process for this Multi-Chip-Module package (CPU+GPU+eDRAM)."

The article also mentions that Microsoft is looking for a "better, cheaper" cooling system and that the new GPU system is already in production.

Hopefully they will be able to fully test the hardware before release this time

I read somewhere they have paid IBM a substantial amount to do testing.

Wow. There is apparently an absolute dearth of interest in a slim Xbox 360............

Wow. Would be huge if it happens, and is ultra-reliable. Could start selling in Japan if they took interest, and had a relevant market push there like what the PSP Slim + MHP2 did in Japan (afterall, since the Slim launched, Japan H/W has never been the same. The PSP has owned the DS every week since)

I reckon, it'd be massive.

If that happens I believe that RROD would be a thing of the past... In that case, it might be much more interesting to get a 360.

Japan is a one console country, don't think this would make the 360 all of a sudden explode. there still is a lack of games that would get japanese gamers interested enough to stop playing their wii and switch. the same logic would mean that if the ps3 got a slim version that the sales would explode and everyone shot that down.

I really hope this next xbox can get rid of the RRoD and the many other problems i have seen first hand that the 360 has. But one thing MS really needs to do is get rid of the $60 a year to play online. I want to buy a 360 once they have another major price drop but the online fee is a big pain for me and my friends who don't plan to play online games all the time but just occasionally.

How the hell is HDD gonna be compatible with the supposedly new version?
I wouldn't like to change profiles or something. Because, if a slim 360 is out, I'm gettin' it!