[Update] : A new report from Kotaku this morning says industry sources claim the next Xbox will play Blu-ray discs, may not play used games, and will ship with the next iteration of Kinect. Kotaku said Microsoft may implement some sort of anti-used games system for its next console, which could include linking a copy of a game to your Xbox Live account. The reports says right now it's completely hypothetical and is not clear how it may be included, if at all.

One source familiar with Microsoft's plans for the new Xbox said Microsoft plans to ship their new Xbox with a new version of its red-hot Kinect hands-free sensor system. The new Kinect would contain an on-board processor, a feature originally intended for the first Kinect. That processor would enable a new Kinect to more effectively detect users' motions.

[Original post] The Internet is swirling with rumors today about the graphics capability of Microsoft's next console.

According to a report from Fudzilla published today, the power behind the next Xbox will be a PowerPC CPU married to a modified ATI Southern Islands 7000 series GPU. The code name for the 32nm chip is Oban, and the report says it's currently in production. The first run of these chips are being made for development kits only.

Fudzilla's report suggests chips for consumer consoles will go into production by the end of the year, suggesting we won't see Microsoft's new console until 2013 at the earliest. Meanwhile, IGN says the GPU will be based on the 6000 series instead, akin to the Radeon HD 6670.

So far, Microsoft isn't commenting on any of the rumors.

[Source: Fudzilla, IGN]