There is a new rumor which is making headlines around the tech and gaming sites. According to an article from the tech Australian site Smarthouse Microsoft is working with Toshiba on a new version of Xbox 360.

The new version will have a larger hard drive and new software. But the big news is that the new Xbox 360 will integrate a HD-DVD unit.

Microsoft is one of the backers of HD-DVD format and currently it sells a HD-DVD unit for Xbox 360 as a separate accessory.

Quoting an inside source from Toshiba, Smarthouse noted that it’s likely the company will sell a version of the HD-DVD powered Xbox 360 under its brand name.

“An Xbox with a built in HD DVD drive is critical. They and we are working on it. It also has to be more than a gaming machine. Microsoft recognizes this. A version of the device may also be sold under the Toshiba brand name,” said the source, who was identified only as a senior Toshiba executive in Singapore

Smarthouse added that the HD-DVD units is not the only upgrade intended for the new Xbox 360 and a dual HD TV tuner and a docking port for an MP3 player are also considered.

It’s hard to tell if the Smarthouse’s article isn’t just wishful thinking, but is certain that Microsoft is looking for new methods to improve their gaming platform.

Xbox 360 was the first next-gen gaming console released on the market two years ago and now Microsoft should compete with PS3 and Nintendo Wii, which are just one year-old.

Also, from the beginning, Microsoft promoted its console as the entertainment device for any living room, so any addition to the multimedia capabilities of Xbox 360 is just another logical step.

The partnership could be beneficial for Toshiba also, as the company is trying to win the competition with the Blu-Ray format.

For the moment Xbox 360 has the time of its life, because thanks to the Halo 3 release, Microsoft sold in September nearly 528,000 units in US alone.

But despite having the best month since the last year shopping season, the Redmond company has a lot of motives to worry about the future, because Nintendo Wii had also strong sales. With 501,000 units sold in the same period, Nintendo is hot on Microsoft's heels, and with a lot of great games coming up, Wii could be the main gaming attraction this Christmas.
In this situation, a new version of Xbox 360 could make a perfect sense. But when will be the perfect launch time? Smarthouse said that the new console will be released late in 2008 or maybe at the 2009 CES.

In my opinion, if Microsoft is indeed working on a new console, the spring of 2008 it will be the perfect time, as the effect of Halo 3 will begin to fade away and Sony will launch its long awaited Home project.

But until then let’s wait and see if this is not just another rumor.