GameSpot is reporting on a rumor first heard from Australian tech site smarthouse.com.au that Toshiba has partnered with Microsoft to begin production of HD-DVD drive-equipped Xbox 360s to combat the PS3’s built-in Blu-Ray drive.

From the article:
‘Now, if Smarthouse is to be believed, Toshiba is making another
move to increase the adoption of HD-DVD. ‘Insiders at Toshiba, owner of
the HD-DVD patents, claim that Microsoft is working on a brand new Xbox
that will incorporate not only a new HD-DVD drive but a larger hard
drive and new entertainment software that is a spin-off from its
struggling media center offering,’ the site claims. After
quoting a Toshiba executive saying ‘an Xbox with a built in HD-DVD
drive is critical,’ Smarthouse goes on to say the new 360 will also
have built-in Wi-Fi and true 1080p output–capabilities both versions
of the PS3 already have. Microsoft is also considering building in a
dual HDTV tuner, Tivo-esque program guide, and a new type of universal
MP3 player docking port.’