An Xbox 360 console equipped with an HD-DVD drive has been rumored on and off for some time now, but those rumors gained some credence recently after a senior Toshiba executive in Singapore let slip that Microsoft is working on a new model Xbox 360 complete with HD DVD drive, and even raised the possibility of a Toshiba branded Xbox 360 being released in the future:

"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."
The new device is supposedly being developed in response to Sony's numerous entertainment features on the PlayStation 3. It will not only support HD-DVD playback, but may also include mobile device docking capabilities, wireless networking, and a dual HDTV tuner, meaning it could act as a digital video recorder as well.

The move would be favorable for both Toshiba and Microsoft, the two main proponents of HD DVD, as the companies continue to battle Sony's rival Blu-ray next-gen DVD format. The reports suggest a release of late 2008 or in time to coincide 2009 CES show in Las Vegas. In any case, Microsoft is refusing to comment on this, so we'll have to wait and see if this is not just another rumor.