Toshiba is predicting that an Xbox 360 with an internal HD-DVD drive will hit stores by the end of the year, according to Australia's ITWire.
A Toshiba higher-up told the site that he expects Microsoft will be making some sort of announcement "fairly soon." Keep in mind, this is just the opinion of one general manager over at Toshiba, which has a bit of a stake in HD-DVD. While I don't doubt that an HD-DVD Xbox 360 is a possibility, I would think that Microsoft would test waters with their external drive first. Why rush in to a very unpredictable format war with so little to gain?
Update Microsoft has officially shot down Toshiba's speculation.
Microsoft to release HD DVD Xbox in 2006: Toshiba exec [IT Wire, via 1Up]
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