Over the weekend we heard a lot of talk about the possibility of a new console from Microsoft arriving in 2010. While some like to call this new console the Xbox 720, we don’t think that the 720 is Microsoft’s next generation console at all.

The start of a lot of this talk was the comment that when Natal does launch it will be as big as a console launch. It is possible that with strides in cost reductions that Microsoft has made, coupled with the improvements in reliability, that it could be possible that Microsoft might launch a revised version of the Xbox 360 and call it the 720.

The 720 would include the Natal device as part of the bundle along with a more streamlined design with larger integration, modifications, and die shrinks that will be focused on cost reduction. It is also possible that it will have a revised GPU that is faster and can deliver high frame rates and better performance while offering 100% compatibility on a smaller die which would run cooler and give off less heat. It is also expected that the CPU might get a little speed bump, as well.

As Nintendo did with the Wii, which is really nothing more than a repackaged Game Cube with new motion controllers, Microsoft might engage in this bit of re-packaging itself. The 720 would be initially sold as an upscale or high-end alternative for Xbox 360 users who want more.

Despite the confidence of our sources, we just don’t think Microsoft would split the platform without making sure that it was not really possible for developers to optimize for the high-end hardware without providing full compatibility to the older units. Right now, it is hard to say. We think it is unlikely that you will see new consoles until at least 2011, and pushing the hardware up a notch might help extend the sales window.