After Toshiba pulled the plug on HD DVD the rumor was that Microsoft was going to offer support for the Blu-ray devices both in Windows and on the Xbox 360. Now Microsoft is claiming that they're not presently working on such a device for the Xbox 360:
"Xbox is not currently in talks with Sony or the Blu-ray Association to integrate Blu-ray into the Xbox experience," (Xbox group product manage Aaron) Greenberg told Reuters in an interview.
One possible reason why Microsoft isn't developing a Blu-ray player just yet is that they might be planning on pushing their Xbox Live video rental service harder. Why back a competitor's technology when you can vertically integrate?