We have talked in the past about Microsoft needing to add Blu-ray abilities to the Xbox 360 now that HD DVD is dead to keep pace with the PlayStation 3. Previously, we told you that although Microsoft had yet to confirm it, reports indicated that work was already on the way to deliver a Blu-ray-enabled Xbox 360.

Now we have been able to flush out the plans a little more, as leaks in Asia indicate that Asus subsidiary Pegatron Technology has, in fact, won the order to manufacture the new Xbox 360 consoles that will be equipped with a built-in Blu-ray drive. According to various sources, Lite-on will provide the Blu-ray drive that will be used in the new version of the Xbox 360 console.

It would seem that while we had thought that Microsoft’s strategy would be to offer an add-on Blu-ray drive similar to the add-on HD DVD drive that they previously offered, but at least for the moment that appears not to be the case. The new Blu-ray version of the Xbox 360 will offer a built-in Blu-ray drive and will be a separate new SKU.

What is not known is what the configuration will look like for this version of the Xbox 360. Will it be targeted at a high-end SKU with more hard drive space and accessories to replace the Elite SKU? Will it feature additional die shrinks of the CPU or the GPU to provide better cooling and reduce cost?

With hard drive prices continuing to fall it is not beyond possibility that this new Blu-ray Xbox 360 SKU will feature a bigger hard drive, likely a 250GB hard drive in addition to the Blu-ray drive. We suspect that it will feature die shrinks for better cooling and other cost reduction measures.

We suspect that it will be positioned as the new high-end version of the console, with the Elite version being discontinued altogether or maybe moving into the mainstream position in the line up with the Pro version of the Xbox 360 being discontinued. We would find it unlikely that they would drop the low-end Arcade version of the 360.

The new Blu-ray version of the console is targeted to make its appearance sometime during the 3rd quarter of this year and will be the likely candidate that Microsoft will use to go up against the PlayStation 3 this holiday season. As for a Blu-ray add-on drive for current owners of the Xbox 360, at this point we would not rule it out, but at least for the moment Microsoft is clearly focused on the new Blu-ray version of the console.

We are projecting that if Microsoft is able to achieve some cost reductions on the Blu-ray version of the Xbox 360, even with a 250GB hard drive they could be in the US$449 price point, which would put it clearly ahead of the PlayStation 3 as far as value for money. Of course, the biggest question is how much the Blu-ray drives will fall by the time Microsoft is ready to ship in the 3rd quarter.

With retail Blu-ray BD-ROM drives hovering clearly over the US$125 mark right now, this is the component that will likely contribute most to where Microsoft is able to position the price of the new Blu-ray console. We do suspect that they will try to be competitive with the PlayStation 3, so a price war could be on the way this holiday season.