Microsoft Corp. and Toshiba Corp. this week denied working on a version of Microsoft Xbox 360 game console with built-in HD DVD drive. Nonetheless, the fact that such rumours have been surfacing regularly for about two years now, it may eventually turn out that there is no smoke without fire.

“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,” an anonymous representative for Toshiba is reported to have said by Smarthouse web-site.

For the first time a rumour in regards HD DVD-equipped Microsoft Xbox 360 game console emerged in mid-December, 2005; the second time that the device emerged on horizon was in July, 2006, when Mark Whittard of Toshiba said that it was possible for Microsoft to develop a flavour of Xbox 360 with HD DVD drive inside; the third time when rumours about the product surfaced on a Taiwan-based web-site in September, 2006, with claims that Microsoft started development work on the device. Finally, Microsoft tipped a “new” HD DVD drive for the Xbox 360 in September, 2007, but then retracted the claim.

The rumours today include possibilities to release a version of Xbox 360 game console that would rival an anticipated media center flavour of Sony PlayStation 3 and would feature a TV-tuner and new multimedia software besides HD DVD drive incorporated inside.

“Toshiba has no comment to make on this matter. The Xbox 360 is not a Toshiba product,” a spokesman for Toshiba UK is reported to have said by Stuff.tv web-site. Microsoft reportedly also denied the possibility.

While Microsoft can enable future customers with capability to view HD DVD, the game machine itself is unlikely to benefit from that, as games for the console are expected to be oriented on typical Xbox 360 devices that only support typical DVDs. On the other hand, if Sony Computer Entertainment Inc.’s PlayStation 3 with built-in Blu-ray drive starts to outsell the Xbox 360 in the USA and Europe, Microsoft will have to seriously consider adding HD DVD drive or cutting the cost of its Xbox 360.