Carlo Becchi writes "According to Engadget a new version of the Xbox 360 is on the way. The next version of the console is codenamed 'Zephyr', and sports a bigger disk (120 Gb), better manufacturing process (65nm) and HDMI digital out up to 1080p. From the article: 'The 120GB drive may or may not come bundled with the kit, we don't yet know, just as we also don't yet know how much a Zephyr 360 is going to run (we imagine it'll go for the same price as currently so they can keep up a little on their expanding margin).'" It should be pointed out at this point the whole story is a fairly convincing photo and leaks from 'a source'. Take with a grain of salt.
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