Reports are coming in that Microsoft is working on two SKUs for their next generation Xbox. A dedicated gaming console, the Durango, and a low-cost alternative television set-top box as well. This "Xbox TV" will act as a living room base for a wide spectrum of Microsoft devices, dropping the expensive specifications the Durango will require, but retaining the media and social services. The two "always on" devices would likely be announced early 2013 and released later in the year, prior to the holiday season.
As we understand it, the box would serve as a provider of Netflix, Hulu, and other expected services that haven't quite made the jump into all net-enabled televisions yet. Then add in Microsoft's scaling Windows 8 functionality, which would allow for users to use the box in various computer-like ways. For instance, the Windows 8 marketplace, which could provide smaller scale or mobile games. There'd likely be to various Xbox Live services as well like the friends' list and party chat.
What we're seeing, I believe, is Microsoft's answer to recent devices that have become popular, like the Ouja, Apple TV, mobile devices, and yes, the Wii U. Put money down now that this set top box will feature connectivity with the Microsoft Surface tablet and Windows 8 enabled phones. It would certainly also work with the rumored Kinect 2.0. Basically, this is Microsoft's cheap way to quickly respond to all new market shifts, but without having to also figure how to sell it to gamers at the same time. Maybe it will even allow game streaming, like OnLive (RIP), or game streaming to your tablet. It's all starting to come togethe
Keep in mind this is all rumor, though The Verge seems very confident in their sources. One thing's for sure, I'd buy one, if I wasn't already planning on picking up a Durango.