Source: A string of reports tracing back to predictions pieces on UK-based gadget site Stuff.tv and in The Seattle Times.

　　What we heard: When Microsoft decided to back HD DVD in September 2005, many assumed the soon-to-be-launched Xbox 360 would eventually support the next-gen video format. Sure enough, at the 2006 Consumer Electronic Show (CES), then-Xbox marketing chief Peter Moore unveiled the console's external HD DVD drive. While Microsoft touted the peripheral as its way of offering consumers more choice, many wondered if it meant Microsoft didn't have enough faith in the format to make it standard in its multimillion-unit-selling console.

　　In September 2006--two months before the 360's external HD DVD player launched--Taiwanese electronics-industry news site Digitimes reported that Microsoft had designed a 360 with an internal HD DVD drive to rival the PlayStation 3's built-in Blu-ray Disc player. However, the predicted early-2007 launch period came and went without an HD DVD-equipped hitting the market. The rumor then faded--until October, when reports surfaced of a joint effort with HD DVD creator Toshiba to create a 360 that would support the high-definition format.

　　With CES 2008 just around the corner, speculation is growing that Microsoft will use the gadget-centric event to unveil a new HD DVD-equipped Xbox 360. This week, a series of reports sparked by the two aforementioned pieces raised the possibility that Bill Gates will use his final CES address as Microsoft's chairman to announce a new console, which Stuff.tv calls the "Xbox 360 Ultimate." According to stuff's "guesstimate," the new console will have many of the same features as the PS3, including 1080p HDMI video output and built-in Wi-Fi. It will also feature the 65nm CPU and GPU, which will enable it to be cooled by a "near-silent" fan, and will sport a massive 320GB hard drive--or so Stuff.tv editors speculate.

　　Seattle Times writer Brier Dudley goes one step further, speculating that Gates will announce it is licensing the 360 platform to other manufacturers. Such a move would drastically shake up the console market, as it could allow Sony's consumer electronics competitors to begin competing with it in the games space.

　　The official story: Both the Times and Stuff.tv's hypotheses make sense--except for one small thing. In a rare abstention from its tried-and-true rumor-response mantra "Microsoft does not comment on rumors or speculation," the software giant is denying it has any plans for an Xbox 360 with an internal HD DVD player.

　　"We have reiterated multiple times since launching the Xbox 360 HD DVD Player that we have no plans to integrate an HD DVD player in to the Xbox 360," a spokesman told GameSpot. "We feel that offering the drive externally is the best way to give consumers the ultimate choice to create their own high-definition experiences."

　　Bogus or not bogus?: Officially bogus--for now--that Microsoft is making a 360 with a built-in HD DVD player. However, if Microsoft licenses the 360 platform to Toshiba, expect the electronics giant to rush a HD DVD-hardware-equipped device as quickly as possible to prop up the format's flagging fortunes in the next-gen video war.