Steve Ballmer, Microsoft Chief Executive, has confirmed the company are trying to find ways to support the Blu-Ray standard. With the body of HD-DVD barely cold, Ballmer has said, "We've already been working on, for example, in Windows, device driver support for Blu-ray drives and the like."
"I think the world moves on," he continued. "Toshiba has moved on. We've moved on, and we'll support Blu-ray in ways that make sense."
No comment about how this pertains to the Xbox 360 or PC market, but it would seem likely we'll see some kind of external unit before long.