It seems that always before E3 every year we have a lot of sources that are writing, Emailing and calling us with the latest Microsoft hardware news prior to the show. This year has been no different, with the exception that it seems to have gotten started a little earlier this year than last time around. We have to think that Valhalla is a lot of the reason for this. From a hardware perspective we have our best sleuths on the job and here is what our crystal ball says about Xbox 360 hardware between E3 and the end of the year.

As we reported and we have been attempting to confirm, the pictures floating around of that new Xbox 360 motherboard do appear to be either a pre-production test board or Valhalla developmental board. We think it does confirm that you will see a new revision of the Xbox 360 console this year and it will likely feature a slimmer console design. We are already tagging this revised version as the Xbox 360 Slim, so we will continue to go with that.

As for what we do know about Valhalla, we know that it will combine the CPU and GPU into one package. It will likely be at 45nm and we think it will use a power supply that will drop the power requirements to a scant 130 watts. The chip itself will be big, due to the nature of the combination of a CPU and GPU in one chip; and at 45nm this could lead to at least some initial yield problems, but we think not. Expect the TDP to be in the range of 120 watts to 130 watts, so cooling this chip will still be an issue; but it should be easier to cool (which can be seen in the pictures by use of a standard Cooler Master heat sink) but we suspect that it does have a copper core for better cooling. Gone with Valhalla will be the elaborate and expensive heat pipe cooling solutions we have seen in Xbox 360 past.

Xbox 360 storage is always a hot topic. The news that Microsoft is going to allow USB mass storage devices up to 16GB on the Xbox 360 is, of course, big news. By buying two 16GB flash drives and plugging them into the two USB interfaces, you could have 32GB of storage for you Xbox 360 at an affordable price. The cap of two USB flash drives and 16GB will allow Microsoft to make the sales of the Arcade units even more of a value, as you don’t need a hard drive till you want to have a hard drive. It also keeps Microsoft from having to participate in the flash memory buying circus for their overpriced and low capacity flash memory storage units. Look for this to arrive soon. While some are now telling us to look for it in the summer update, we are not so sure that it might not arrive sooner.

As for the Xbox 360 hard drive merry go round, Microsoft has been happy with their ability to sell the 250GB hard drives as part of the Special Edition or Limited Edition console offerings. So far, the company has done three of these major offerings with all three of them tied to major software releases. Still, we think Microsoft is going to announce the release of a 250GB hard drive upgrade kit for current Xbox 360 owners. It is really more of a question of when than anything else. It seems that E3 is the logical choice for this announcement as we continue to hear that availability of the current 120GB model is tight. Of course, Microsoft is selling the transfer cable and disc so you can buy the 60GB and upgrade to that one if you are one of those that still have a 20GB drive.

Natal continues to generate a lot of talk, as well. The decision to move from a chip-based solution within Natal to a software-based solution has met with some complaints of poor performance and latency; but from the latest that we hear, this is improving and will continue to get better so the chip should not be as missed, and it certainly will lead to a lower cost. The latest on pricing pegs Natal at less than $100 for sure, and despite wanting to hit the $50 price point, it looks like it will slide in at $79, but that could change before release. Look for Microsoft to announce the first batch of Natal titles at E3.

A rumor that is more of a whisper than anything else at this point about the release of a new special edition Xbox 360 Halo Reach themed controller is strictly more idle chit-chat than anything else. While we see this as possible, we have to think that if they are going to announce it, it will come at E3. Microsoft has offered Halo-themed controllers before, so this might not be too far off the grid.

While Sony is talking a lot of smack about bringing their A-Game to E3 this year, we look for Microsoft to make a splash, as well. They had so much to talk about, in fact, that they had to have an event prior to E3 to make sure that they could get it all out. While it might be a stretch to see Microsoft officially announce the Xbox 360 Slim at E3, we do think they have a lot to talk about, and hardware is one area that will see a lot of action this year.