It seems that there will indeed be several configurations of the next generation Xbox 360 console from Microsoft, and that perhaps not all will ship with a hard drive. Xbox executive J Allard is warning games developers not to rely on the presence of a hard drive when writing their new games. Although Microsoft is not yet in a comfortable place to announce details of possible multiple models of the Xbox 360, it seems more and more likely that budget models will lack a hard drive. There will also likely be several differing Xbox 360 models beyond that, some coming with traditional DVD drives, and some coming with HD DVD and so forth.
"We've said [to developers], 'Hey look, don't bank on the hard drive always being there'. There may be a scenario in the future where we don't want to have a hard drive, and in that case, we have to make sure that the games that you've created are accessible to the broadest possible audience."
Currently, though, the official line seems to be that the Xbox 360 will ship with a hard drive as part of its basic specification, but the drive remains a removable module which can be taken out of the machine by the end user.