Two months ago, shortly after Warner announced its decision to back Blu-ray exclusively, Microsoft revealed that it wasn't ruling out the potential addition of a Blu-ray drive to its Xbox 360 console. The company stated, "It should be consumer choice; and if that's the way they vote, that's something we'll have to consider." In other words, if the market chooses Blu-ray, Microsoft would follow.
Since then, Toshiba has thrown in the towel and effectively killed the HD DVD format, and Microsoft has discontinued the Xbox 360 HD DVD drive. So what's the situation on the 360 Blu-ray drive now? According to a Financial Times report quoted by Joystiq, Microsoft is apparently holding up its end of the bargain by talking with Sony over the potential offering.
If these talks come to fruition, Joystiq says it doubts Microsoft will introduce an Xbox 360 console with built-in Blu-ray hardware like Sony's PlayStation 3. However, an external add-on drive to replace the now-defunct HD DVD drive seems like a distinct possibility.