When asked about it long ago when the rumors started, Microsoft denied them emphaticaly . Now however we are starting to see that rumor become reality. Microsoft will promote Blu-ray after all.
Microsoft is ready to ship an external Blu-ray add on drive for the XBOX 360. The drive will release near the holiday season to give it that extra nudge in to profit land. Microsoft is thinking somewhere around the $100- $150 price range.