|Multiple sources are reporting unsourced claims that Microsoft is developing a set-top box to supplement its future Xbox strategy. The new device is allegedly part of a two-SKU strategy for the next iteration of Xbox hardware that will be announced in 2013, and released prior to the holiday purchase season. The move would put Microsoft in a position to capture living rooms that it might not otherwise see with only a pure gaming console, and position it adjacent to Apple's offering in that market space, the Apple TV.
The Verge reports that the device will run the core components of Windows 8, perhaps RT, and be intended to support casual gaming titles rather than the full Xbox gaming experience found on a full-size console. No hardware specifications have been revealed, or likely even engineered yet, but the rumors suggest that Microsoft will use an "always on" methodology that boots rapidly and resumes to provide no-wait access to video services.
A completely new device seems unlikely. The path of least resistance for Microsoft would likely be a retooling of the existing Xbox 360, to leverage the existing casual gaming titles found on the Xbox Live marketplace. The current PowerPC architecture in the Xbox 360 is more than capable of processing 1080P video and beyond, further enhanced if the video coprocessor is replaced with something more modern than the seven-year-old custom circuitry currently in the Xbox 360.