Well it looks like Microsoft only half lied. The new HD DVD drive will not be part of the Xbox 360, it will be an external drive attached to the Xbox 360.
During the CES Keynote, Microsoft’s Peter Moore announced the device: “The new drive will offer millions of Xbox 360 owners the ability to easily enjoy HD DVD movies and will provide consumers with even more choices for experiencing high-definition content, in either physical or digital form.”
Note that he said movies. I doubt we will see games on this platform, as they have already enough versions of the Xbox 360, and does anyone remember Sega CD?
It will be interesting to see what the cost of the drive will be, and I also think it is interesting that they decided to pick HD DVD which in my opinion is not as strong of a format as Blu-ray, but that is just Betamax versus VHS, I guess.