Microsoft said that they Lite-on is not manufacturing an Xbox 360 Blu-ray drive, but if you read their words carefully they don’t say that there isn’t one in the works.
“No. Lite-On is not manufacturing Blu-ray drives for Xbox 360. As we have stated, games are what are driving consumers to purchase game consoles and we remain focused on providing the largest library of blockbuster game available.
“For our customers who want a premium movie experience we offer the largest library of on-demand HD content available and the ability to play back DVDs in high definition.”
Others have mentioned that there has been internal testing of a Blu-Ray Drive for Xbox 360 for some time. Decoding Blu-ray is actually easier than HD-DVD was, only the menu system which is based on Java is more difficult. The Xbox has more than enough horsepower, but licensing may be difficult with Sony holding much of the portfolio required to produce a Blu-ray device, and with PS3 being their flag ship product they may wish to guard what little unique features it has left.