Source: Gaming blog Joystiq.

　　What we heard: Last year ended with British company Datel suing Microsoft after an Xbox 360 firmware update locked out all third-party memory units. Now, it looks like the days of the console's proprietary memory units and hard drives may be numbered.

　　According to screenshots and documentation obtained by Joystiq, Microsoft is planning to add USB memory device support to its console via a firmware update later this year. The blog selectively quoted a memo from a "senior software development engineer" that said "USB mass storage device support on Xbox 360" is necessary due to "increased market penetration of high-capacity, high-throughput USB mass storage devices." The update will reportedly allow gamer profiles, game saves, and entire titles ripped from a disc to be stored on said devices--although the latter requires a game disc to be in the console for verification.

　　Screenshots accompanying the memo show a software development kit formatting a 4-gigabyte memory unit for use with the Xbox 360. Most new models are larger than the biggest first-party memory unit's 512MB capacity; Datel's third-party memory units went up to 4GB. Microsoft's spec for the functionality reportedly said USB devices must be at least 1GB in size but could not be anymore than 16GB, thereby artificially blocking the use of high-capacity external hard drives with the console.

　　The inability to hook up to large hard drives will anger many gamers who consider Xbox 360 hard drive pricing exorbitant. The $300 Elite model ships with a 120GB HDD as standard, although higher priced limited edition bundles come with a 250GB HDD. Sold separately, the 120GB HDD was $150, but the stand-alone product is no longer available at GameStop, Amazon, or Wal-Mart. The sudden disappearance has been coupled with premature retailer listings of a 250GB hard drive being released on March 23 for $130. Currently, the only Xbox 360 hard drive sold separately is the 60GB HDD that is part of the $100 Xbox Live starter pack.

　　The official story: "Microsoft does not comment on rumors or speculation." -- Microsoft representative.

　　Gamers may not need to pick up a special bundle to get the 250GB drive after all.

　　Bogus or not bogus?: Looking not bogus. With rumors of a slimline model gathering steam, Microsoft seems to be open to tinkering with the Xbox 360 form factor. And given the increasingly competitive battle with the PlayStation 3--which does support USB drives--the software giant may be amenable to expand its console's functionality as well.