I'm not usually one for rumour mongering, but when the rumour involves my favourite console, I'll bite.
Rumour has it (always wanted to say that) that Microsoft is developing 2 different variations of their next generation console.
The one will be a slightly lower priced and lower performing settop box, mostly aimed at families looking at units for entertainment purposes, like streaming Netflix and watching DVD's and hopefully Blu-ray.
The other will of course be the monster gaming machine complete with (rumoured) full backwards compatibility with Xbox 360 games. I can only hope that the last part is true.
When Sony tried full backwards compatibility with their PS3, only the first generation PS3 had full compatibility, mainly because the Emotion Engine chip that was present on the PS2, was embedded on the new hardware. Budget and manufacturing constraints forced Sony to remove the Emotion Engine, instead opting for software-based backwards compatibility. The new software based compatibility could not fully emulate the entire PS2 library of games. Finally, with the new PS3 Slim, Sony removed backwards compatibility completely.
I sincerely hope they don't call it the Xbox 720 though. I was telling my nephew just the other day that that would be a stupid name...
Anyway, hit up the source link for more rumour mongering goodness!