Microsoft is planning a brand new Xbox that will include a Blu-ray drive. Confirming that Sony and Microsoft are in talks, a senior Sony President has claimed that the move will not hurt the Japanese consumer electronics company.

Sony has confirmed that they are in talks with Microsoft about offering a Blu-ray drive for the Xbox 360. Reported exclusively on SmartHouse 4

Chief Executive of Microsoft, Steve Ballmer has that the company will now support Blu-ray. "We've already been working on, for example, in Windows, device driver support for Blu-ray drives and the like, and I think the world moves on", said Ballmer at Microsoft's Mix08 internet conference.

"Toshiba has moved on. We've moved on, and we'll support Blu-ray in ways that make sense", he said.

In further developments SmartHouse has been told that Microsoft is also working on a brand new Xbox which will have HDMI and a much larger drive with some saying that it could go up to 500GB to accommodate the downloading of online content.

We are also told that Microsoft is writing a new software interface which while similar to their current media centre offering will be embedded on a built in chip.

The software will allow users to manage content a lot easier while also interfacing with new Internet Explorer and Media Player software capability.

The installation of a Blu-ray drive into an Xbox could put pressure on Sony as a great deal of the success in Sony winning the HD DVD Vs Blu-ray battle was down to the inclusion of a Blu-ray drive in the PS3.

Stan Glasgow, the US president of Sony Electronics, has said the two sides were now talking about Microsoft adopting Blu-ray.

Mr Glasgow, speaking at a media dinner, added that discussions were also taking place with Apple, which has not offered Blu-ray drives on any of its computers so far and has focused on digital media via downloads and streaming through devices such as its Apple TV, the British Financial Times has reported.

The FT says that the Sony president did not believe Blu-ray would be overtaken by high-definition content becoming available over the internet.

Bandwidth limitations meant it was still available to only a few, he said, and consumers favoured disks they could own. "Downloading will build over time, but this will be over a period of years," he said.