This is a rumor of course, but it is something to keep in mind if you have time for a little shopping this weekend. Official word should come within the next day or so. [Kotaku]

"The Xbox 360 system software uses some of the included 512MB memory; less storage will be available to users. Additional storage (sold separately) may be needed for game saves, Xbox LIVE Arcade games, content downloads, personal file storage, and additional enhanced functionality. A hard drive is recommended for LIVE, and is required for some features," the company said in a statement. "We want to offer consumers a bit more memory at the same low price so they can enjoy more experiences on Xbox LIVE."

There you have it. [Eurogamer via CrunchGear]

A Microsoft spokesperson told Xbox360 Fanboy that they constantly update the console's 1700 plus internal components and that the Xbox 360 Arcade was moving to internal memory. New buyers (of which there were many) can download content and save games right out of the box. Old users... well, you probably already got the external memory anyway, right? Not like you could return it now. Try not to get too hung up on buyer's remorse. [Xbox360 Fanboy]

And you get 3 months of Live free. I think it's better than the more prevalent software bundles, personally, since not everybody wants Kung Fu Panda or even Rock Band. Just $50 off the Pro, straight up. (You've gotta get your own HDMI cables, but just get 'em from Monoprice for a few bucks.) The discount takes shows up when they're both in the cart. They've got 500 total, so hit it quick. As always, if you've seen better, let us know. [Amazon]

REDMOND, Wash. — Oct. 22, 2007 — Just in time for holiday, Microsoft Corp. today released a new Xbox 360® console that delivers games and content to everyone in the family for an incredible value of $279.99 (U.S. estimated retail price)*. Available in stores beginning today, Xbox 360 Arcade console is the first Xbox 360 console to include five family-friendly games, a wireless controller, a high-definition multimedia interface (HDMI) connection to enable high-definition output if desired and 256 MB of memory useful for storing games and entertainment content. At $279.99, the Xbox 360 Arcade console will include five best-selling games: "PAC-MAN Championship Edition" (NAMCO BANDAI Games America Inc.), "Uno" (Carbonated Games), "Luxor 2" (MumboJumbo), "Boom Boom Rocket" (Electronic Arts Inc.) and "Feeding Frenzy" (Sprout Games).
"As families gather together this holiday, it's the perfect time to launch a new low-priced, high-value Xbox 360 that plays games, TV shows and music for everyone to enjoy," said Jeff Bell, corporate vice president of global marketing, Interactive Entertainment Business at Microsoft. "In addition to offering an incredible all-in-one package for families to get right into the fun, the Xbox 360 Arcade system features the industry-leading Family Settings, which allow parents to control what their kids are watching and playing — and we know how important that control is to families around the world."
Karen Dodge, senior vice president and chief merchandising officer at Toys "R" Us, added, "We are excited to offer this new gaming experience to our customers — children and families — who can now enjoy the fun of Xbox 360 together. Many of this holiday season's hottest items provide Internet connectivity, and with the online entertainment options available through Xbox LIVE®, Xbox 360 Arcade offers families a great mix of online content and traditional gaming in one console."
The news of Xbox 360 Arcade comes as part of a broader initiative by Microsoft to bring the Xbox 360 experience to families everywhere. Microsoft also announced today that it is significantly expanding its catalog of high- and standard-definition family fun content that is available on demand direct to the consumer's living room. This includes the addition of everyone's favorite characters such as "Bugs Bunny" and "Daffy Duck" from Warner Bros., which will be delivering the first ever "Looney Tunes" cartoons for download on Xbox 360, starting today. In addition, Nickelodeon is adding three new shows to its already large library of more than 300 episodes of TV shows on Xbox LIVE, Microsoft's premier online gaming and entertainment service, with the inclusion of "Blue's Clues," "The Backyardigans" and "iCarly." "SpongeBob SquarePants Underpants Slam™" (THQ Inc.) and "SHREK-N-ROLL™" (Activision) games will also be available exclusively on Xbox LIVE Arcade, the place to download games for Xbox 360 over Xbox LIVE, adding more fun for everyone in the family.

Microsoft's commitment to family entertainment is complemented by the largest next-generation library of "E"- and "T"-rated games, more than 200 in all, available at retailers nationwide this holiday, including "BEE MOVIE™ GAME" (Activision), "Guitar Hero III®: Legends of Rock" (Activision), "Naruto: Rise of a Ninja" (UbiSoft Entertainment), "Scene It? Lights, Camera, Action" and "Viva Piñata®: Party Animals."

Why the rebranding? It's probably because almost a third of Xbox 360 owners don't even know about Xbox Live arcade. What the hell? We could see the statistic about 30% of Xbox 360 owners not knowing about its HD functionality as seen here, but Xbox Live arcade? We suppose this re-branding fits perfectly for those 1/3 of people who don't really need all that much space on their hard drive because they don't know anything about their consoles at all.

Then again, the word "Arcade" looks horribly photoshopped onto there, so maybe this whole thing is all false. [Gamernode]