Quoting an inside source at Toshiba, Smarthouse claims that Microsoft is prepping an HD DVD-equipped Xbox 360 for late 2008 or early 2009. Other additions swirling around the long-rumored device include an HDTV tuner and some type of standardized docking port for MP3 players.

"An Xbox with a built in HD DVD drive is critical," the unnamed Toshiba employee apparently said. "They and we are working on it. It also has to be more than a gaming machine. Microsoft recognise this. A version of the device may also be sold under the Toshiba brand name."

The feud between HD DVD and Blu-ray has long been brewing, with both Microsoft and Sony positioning their respective consoles on opposite sides of the HD format war. Microsoft's decision to use standard DVDs with Xbox 360 games and its offering of the optional HD DVD add-on solely for movie playback has been criticized within the industry, as more and more developers claim they need the additional storage space available through the newer formats.

Meanwhile, Sony has faced numerous criticisms stemming from the PlayStation 3's higher price point, said in part to be a result of the company's choice to include Blu-ray support in every model. Both sides of the HD format war have begun offering recruitment incentives of free movies in exchange for the support of that particular format.