Joystiq's Alexander Sliwinski reports a credible rumor: Come this spring, Microsoft will allow Xbox 360 owners to install and download games onto external USB storage. He's got photo documentation supposedly written by a senior Microsoft engineer and confirmation from two anonymous sources to prove it.
The documents say you'll be able to store Xbox Live Arcade games, downloadable content, full-scale Games on Demand and title updates on up to two connected storage devices at a time. Installing disc-based games to USB drives is also a possibility, but you'll still need a disc in the tray, just like when you install a game to the hard drive now.
I still think the 120 GB hard drive on current Xbox 360 models is enough, but the earliest Xbox 360 models, which had 20 GB drives, can feel the squeeze. Microsoft gets a lot of heat for the price of its memory cards ($30 for 512 MB) and replacement hard drives ($130 for 120 GB), so this rumor will make Xbox 360 owners happy if it comes to fruition. This would definitely bolster the appeal of the $200 Xbox 360 Arcade, which lacks a hard drive. Joystiq says hard drives will be partitioned for 16 GB of storage maximum, but a 16 GB USB stick for $40 is still a better deal than Microsoft's memory cards.
The question, of course, is why? I doubt we'll ever hear an official explanation, but my best guess is that this has something to do with Datel's antitrust lawsuit against Microsoft. Until last November, Datel sold unofficial memory cards, which stored more data at a better cost-per-megabyte than Microsoft's official products. Microsoft banned unauthorized storage products from the Xbox 360, and Datel claimed the console maker was being anticompetitive.
Maybe it's wacky to assume that Datel's lawsuit has anything to do with this, but the addition of USB storage would certainly take a bite out of Datel's argument.
This story, "Microsoft Readies USB Storage Support for Xbox" was originally published by Technologizer.