Besides offering brief comments about how Microsoft’s next-generation operating system, Windows Vista, would interact with gaming–including a short demo of the next PC Flight Simulator, Gates also revealed that the Xbox 360 would be compatible with a next-generation disc format. As expected, the format in question is HD-DVD, the Toshiba-backed rival to Blu-ray Disc, which is supported by Microsoft’s archrival in the next-gen console race, the Sony PlayStation 3. (Ironically, Toshiba partnered with Sony to produce the PS3’s Cell CPU.)

Also, as one might guess given the fact the 360 has an internal standard DVD drive, the console’s HD-DVD drive will be offered as an external peripheral.

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This has been speculated for awhile. More confirmed news that “new” news.