The rumor keeps circulating that Microsoft is indeed going to include a Blu-ray player in future Xbox 360s. Microsoft continually denies the rumors, such as the one started by DigiTimes regarding a deal with Lite-On to manufacture said drive.
Microsoft's PR department had this say:
“No. Lite-On is not manufacturing Blu-ray drives for Xbox 360. As we have stated, games are what are driving consumers to purchase game consoles and we remain focused on providing the largest library of blockbuster game available.
“For our customers who want a premium movie experience we offer the largest library of on-demand HD content available and the ability to play back DVDs in high definition.“
Microsoft seems to have a crystal clear position: why buy discs at a retailer when you can pay Microsoft to download?