Microsoft announced at their X06 conference in Korea that they will be offering a 100 GB HDD add on for the Xbox360. This is only preliminary information, so no date was given for release, nor any pricing information.
I think everyone and their brother sees this as Microsoft moving ever closer to trying to position their product as a media center, and not just another game console. With 100 GB available, they certainly are moving closer to that possibility. Anyone using Xbox Live already has their system on a network, now they will have plenty of storage. And the HD DVD add on should be coming soon as well. There is really very little left but to start offering some sort of multimedia service. If that is the end game they are shooting for, my only complaint is with the video out functionality of the 360. Why did they not add DVI or HDMI? It would have seemed HDMI would have been a perfect fit.

