Here's the article on this:

Here are my two cents...

Even though the article was by Dean Takahashi who wrote Opening the Xbox, this doesn't necessarily mean he knows things others may not. He wrote the book when most of the Xbox "visionaries" (e.g. Seamus Blackley and others) were still around the company. So even though it's from The Mercury News (which is one of Silicon Valley's best newspapers), this is all speculation.

No hard drive may not be a bad thing, but flash memory is expensive (at least currently), especially in an amount that would be comparable to even a quarter of the amount of the current Xbox's hard-drive. And as in the article, as Tim Sweeny said, a useful online component can really only work with a medium to downloade data and such to. Unless MS can get removable flash memory for cheaper than a hard-drive, I don't see them throwing out any form of hard drive. I don't care what the article says in that regard. MS seems to be gaining A LOT of ground in the Xbox Live business and the hard drive really helps there.

Also, the article says something sort of erroneous I think: "That [hard] drive is useful for online games and storing game art, but many developers chose not to make use of it. As a result, Microsoft seems to have decided that saving the $50 the hard drive costs outweighs its benefits." Many developers also don't make games that are made for Xbox Live, but A LOT do (EA may not, but that's not all of the developers out there is it?). Again, I don't know of any way one can get flash memory that's cheap enough to suffice for that.

Also, the point about backwards compatability was made...what the hell is all I can say. According to the article "compatibility with the original Xbox, which is based on Intel and Nvidia chips, isn't guaranteed. Microsoft is concerned it would cost too much money in hardware or in licensing fees to enable the Xbox Next to play old Xbox games. This is risky in part because Sony's strategy has been to maintain compatibility with its old consoles." I'm not 100% sure, but the PSOne is quite different from the PS2 in regards to the base hardware, and yet you can still play PSOne games on a PS2. So this seems like a stupid point. Granted Nintendo never had backwards compatibility, but at least in this generation, it made sense since they're using disc media instead of cartridges. MS should realize that this is one BIG point in how the Sony beat Sega with its PS2 over the Dreamcast; they told people that it could play all the old stuff people might have already had. Which meant more games already, on top of the ones that would eventually come out (Sony was FREAKING TERRIFIED of the DC; just look at Soul Calibur today. That game looks absolutely beautiful without any frame rate issues its successor on the PS2 has). MS would alienate existing Xbox users, something which they can't afford.

I could go on and on, but I think that this topic was beaten to death at the TeamXbox forums, so I'll stop . I just don't see how possibly alienating the current Xbox userbase is going to help them any. Even though they may cut costs, having the HUGE risk of losing revenue because of pissed off Xbox users who'll jump ship to Sony permanently. And another point...3 processors? That power the current G5 Macs? That doesn't seem quite cost-effective to me...

Even though The Mercury News is a respected newspaper, it's still the media; it's all entertainment to them and just like MS, profit is their bottom line as well. More readers equals more profits. So until we hear anything officially, I'm not going to buy into it, and I don't think most others will either.