MS Xbox 2 iPod Killer?

Cross-post from Peter Rojas' most excellent engadget:

Could Microsoft be preparing to drop a potential bombshell with the Xbox 2? We don't know anything for certain yet,
but check out this tantalizing bit of gossip we received in response to our post earlier today about the Xbox 2
and whether or not it's going to sport a hard drive.
[Read more at engadget.]