Mark Bennett, MS’s European business development director for HD DVD, is reported as saying that the Xbox 360 will be upgraded with a HD DVD drive that will begin shipping sometime next year. He goes on to say that:

the interactive features actually work on HD DVD whereas Blu-ray titles are six to nine months away from getting features that actually work.

Can you handle that, Sony!

[Update: This was all a misunderstanding. Drives will not be updated.]
Xbox 360 to get new HD DVD drive [PCW UK]