Microsoft has confirmed that they will be unveiling an external HD DVD drive for the Xbox 360 at E3. While the company has not released a lot of technical information, they have said that it will connect to the Xbox 360 using a USB 2.0 cable, and will use the console to output HD video and surround sound.
This new accessory will connect to the Xbox 360 console with a USB cable, enabling it to harness the power of the Xbox 360 console for the HD video outputs and digital surround sound. As an accessory, it becomes another shining example of the flexibility of Xbox 360 designed into the console in order to grow and add new features. It's also just one of several new accessories being announced at E3.
While Microsoft has not announced pricing or availability, their external HD DVD drive is expected to ship in time for the Playstaton 3's launch. Of course, we'll find out more later this week when they officially unveil it at E3. In the mean time, Microsoft's press release can be found here.