According to an IGN source, assembly of the next-generation Xbox hardware has begun at the Texas branch of Flextronics – the manufacturer of the original Xbox and the Xbox 360.

However, consumers are unlikely to see the console – codenamed Durango – anytime soon. If the console is being assembled it’s probably for development kit purposes, wherein consoles are sent to game developers to give them an idea of the machine’s power and limitations.

Should Microsoft’s $99 Xbox gambit pay off, it's possible the new machine will adopt a similar pricing strategy at release.

Microsoft provided IGN with the following statement:

"Xbox 360 has found new ways to extend its life cycle like introducing the world to controller-free experiences with Kinect and re-inventing the console with a new dashboard and new entertainment content partnerships. We are always thinking about what is next for our platform and how to continue to defy the life cycle convention.

"Beyond that we do not comment on rumors or speculation."