From what I've read of all the rumours and the recent Gizmondo interview with Gates, I think it is fairly clear that Microsoft will want to keep the PC with Windows as the centre of their vision, with xbox next acting as a client to that server. That means xb next won't most likely have a HD.
All xbox next game saves will be stored either on the Windows PC via wired or wireless lan, or in the "Live" service (they could sell a Live extension for a nominal fee for required space on the servers, or (wild guess) they could even integrate it with your Hotmail storage space
)
If you need bigger storage, you connect the xbox next with your PC. Xbox next would include a version of the Windows XP Media edition (or whatsits official name) with same functionality, streaming and storing music, videos and pictures. Additional downloaded extra content for games would also be stored on the PC hard disk.
They would still sell a separate memory card for xb2, just for those who have nor Live or a connection to a PC.
I've had this vision for a long time already (I have, really
), mobody just paid any attention when I visioned this, or everybody just laughed at me
First I thought of this for Sony and their "Cell world", but now it seems more certain that (also?) MS is going that road.