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Sources I'm talking to at the company suggest that an announcement could come soon that Microsoft

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[MSFT  Loading...      ()   ] will unveil a new version of Xbox 360 featuring a built-in HD-DVD player and HD tuner. The device might be officially unveiled during Bill Gates' keynote at the upcoming Consumer Electronics Show in January, which could be a bummer since it misses this upcominhg holiday shopping season.

It's true you can already play HD-DVD's through the Xbox but you need another device to plug in. Microsoft sells that player for $179, but it's not clear that the new Xbox360HD will simply be $179 more than the current Xbox 360 without it. Consumers might be getting a break if they buy the all-in-one unit.

I haven't heard pricing yet: details to come. But the blogs are all over this. Several analyst firms I talked with this morning say an HD version of Xbox wasn't expected until mid-to late 2008, so anything earlier would be a surprise.

All the hub-bub began with a story in the Australian publication, "Smarthouse," after comments it had gotten from an executive at Toshiba. But The Seattle Post-Intelligencer says no new Xbox is coming after what sound like pretty definitive comments it had gotten from Microsoft; that maybe Microsoft will license its technology to Toshiba for a new kind of all-in-one player/recorder/game-player/HD thingy. Intriguing.

We've placed several calls into the company seeking official comment. Some folks are looking into it; others haven't returned the calls yet. But the folks I'm talking to off-the-record say an announcement is coming.

This could be a big deal for both Microsoft and the HD-DVD movement. Microsoft has already seen a significant pop in Xbox console sales in the wake of the Halo 3 release. In fact, some market research suggests that sales have tripled normal volume. That makes sense since as we've reported there are about 2.5 million Xboxers still playing the game on older consoles, who have not traded up to the new 360. Halo 3 was widely expected to get them to do so.

At the same time, back at the Digital Life Expo, we detailed how HD-DVD was outselling Blu-Ray on laptops by better than 8-1. It stands to reason that laptop users who have onboard HD-DVD would also want that same format at home.

Now that Microsoft is making it even easier for consumers to use the format in such a popular game-player, this is more bad news for Blu-Ray, and of course its primary backer, Sony

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[SNE  Loading...      ()   ] , which makes that competing platform available in PlayStation. All of this becomes much more important in Microsoft's grander plan of using the Xbox to invade the living room. A kind of Trojan Horse. An all-in-one digital entertainment hub masquerading as a game-player.

McAdams Wright Ragen in Seattle expects Microsoft to realize a year-over-year 35% gain in its Entertainment Device Division, to $1.4 billion. Halo 3 is widely viewed as the lynch-pin to getting this beleaguered unit into the black. An all-in-one game-player/HD-DVD player could help even more.

Microsoft reports its earnings on Thursday and I'll preview the expectations--which seem to be gaining a lot of momentum--in an upcoming post.

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