caught this on Gizmodo:
So apparently I got a sexy anonymous rumor yesterday morning, but Thunderbird's wonky spam filtering decided it could wait to be posted until today.
"Regarding the Xbox 2 hard drive, I was snowboarding in Whistler, B.C. from February 19 - 26, 2004. We were in a bar called the Amsterdam Cafe in the village one night and J. Allard, the head of Microsoft's Xbox division was in the bar with some friends. I recognized him from a recent Business 2.0 article and we started talking. (He bought my friends and I a round of drinks he called "Hey Zeuses" - they were Red Bull and tequila and they were nasty.) Anyway, we were talking about the Xbox 2 and he said their current plan was not to include a hard drive in the Xbox 2 itself, but to offer a portable hard drive as an accessory you could buy separately. Here's the kicker: He said what they were trying to do was to incorporate MP3 (and WMA, obviously) functionality into the portable hard drive and turn the thing into an iPod killer. Basically, the idea was to come up with an MP3 player that was as good or better than the iPod that would also serve as the hard drive for the Xbox 2. And he said they planned to sell them as a loss leader at $100 each. I don't know how you can confirm this other than if someone happens to know that J. Allard was in fact in Whistler that week or is fond of a Red Bull and tequila drink he calls "Hey Zeus," but for what it's worth that is what he told me. (He also told me that the Xbox 2 will in fact use an IBM processor, but I think that is already pretty widely known.)"
Hrm, that's a rough one. An integrated iPod-esque hard drive would be a nice two-birds-with-one-stone move if Microsoft had the huevos to pull it off, but why is J. Allard getting lit and blabbing secrets to snowboarders?