Source: The Hardware headz at Joystiq.

　　The official story: Microsoft didn't respond to requests for comment.

　　What we heard: Last week at the Digital Life expo in New York City, a Joystiq reader was watching a demonstration of the Xbox 360. When the demonstrator showed off one of the system's utility screens, it reportedly showed that the hard drive attached to the machine had 38GB of memory left--18 more than the 20GB one available at the console's November 22 launch. Joystiq used this tidbit to further bolster its theory that Microsoft is readying 40GB and 80GB 360 HDs to make the 360 "a trojan horse for direct-to-consumer broadband delivery of triple-A titles."

　　Joystiq's theory is sound for a number of reasons. One is that digital delivery is fast becoming publishers' preferred means of selling games. It lets them cut out the retail middlemen, and it also means the company saves on manufacturing and packaging. And Microsoft would surely love to become the sole digital distributor of Xbox games and add to the revenue it already receives from each game sold.

　　But is it true? Well, the lack of evidence makes this particular instance impossible to prove beyond a shadow of a doubt. However, its worth noting that Microsoft has gingerly danced around the subject of whether it will sell larger-capacity HDs down the line. One concern it must be having is the piracy that dogs the current-generation Xbox. Since the console is made from stock PC parts, it also is very easy to swap out the Xbox's 8GB HD with a larger-capacity HD. After the installation of an alternate dashboard and a game-copying application, a modded Xbox with a larger HD can let users rip games like iTunes rips an audio CD.

　　However, the fact is the 360 will be a much harder nut to crack than its predecessor. Besides the numerous unnamed security measures Microsoft said the console has, the fact that the 360 is "always online" will make it easy for Microsoft to detect pirated consoles and ban them from Xbox Live, as the company does now. Given that one of the Xbox 360's main selling points is its online functionality, many would-be modders will balk at the prospect of being shut out.

　　But, make no mistake--the Xbox 360 will be cracked sooner or later, and someone will find a way to rip games onto its hard drive. Those determined hackers will certainly welcome the eventual "multiterabyte add-on storage options" that Joystiq is predicting, should they come to pass.

　　Bogus or not bogus?: Not bogus. Larger-capacity HDDs are all but certain--it's a question of when, not if.