The rumor mill is running rampart, on the eve of Bill Gates' Microsoft keynote at the Las Vegas Consumer Electronics Show, that a new Xbox 360 will be announced and ship as early as this year. The new Xbox 360, which is reportedly called "Zephyr" internally at Microsoft, will feature an HDMI port to provide full 1080p resolution. (The PlayStation 3 ships with an HDMI port.) Microsoft already supports 1080p videogames and movies, so it only makes sense to have this feature.

In addition, the new Xbox 360 is rumored to feature a new 65 nanometer proessor, which would keep the console cooler. (I use a Nyko fan on my Xbox 360 to prevent it from overheating on long sessions.) In addition, the long-rumored 120GB hard disc drive is expected to come with this new console. With Microsoft now selling games, as well as HD TV shows via Xbox Live Marketplace, gamers are going to run out of space on the current 20GB Xbox 360 hard drive.

Whether or not this specific model is released will be determined, but you can count on two things this year. Hardware price cuts from Microsoft--likely after Sony reduces the PS3 cost--and a new model of some sort for Xbox 360. With the drop in costs to produce the console, it makes sense for Microsoft to do what Sony has done with PS2, which was introduce a new slimmer model. Microsoft never did this with Xbox, although it was rumored to do so; but now that the console maker has a lead, it makes sense to do whatever's possible to keep it.