From Gamespy's Interview with Shane Kim:
And if that sounds crazy...well... I'm not an analyst for a reason!
There were certainly rumours of the 120GB HDD, and it seems that 60GB is not what they're going to do. The pricing of the 20GB and the new drive ought to be interesting if it is indeed 120GB. It seems an even bigger rip (to those who bought the 20GB separately) if they introduce the larger drive at the same price point and drop the price of the 20GB significantly. IMO, they'll drop the 20GB price a bit and introduce the larger drive at a slightly higher price than the current 20GB price.GameSpy: We're low on time, so let me quickly address the reports of a redesigned Xbox 360 with increased drive space. With your film and television downloads, storage is a real issue. Any details?Shane Kim: Nothing has been announced yet, but I've read about it on the Internet, so it must be true. We've added to the complexity of the issue since we've enabled more content to be available. Which is a good thing. So we know that storage is an issue that we have to address, but there's nothing we're announcing right now. Believe me, it's an issue that we're aware of. I will tell you that in general, I think that Sony has a real issue with the 60 GB drive. It's in a weird space, and it's not much more than 20 GB. When you think of all the kinds of content that will become available, when you talk about future-proofing, you really need to be thinking about significant steps. And that's all I'm going to say. So nothing official, but I'll just mention what I've read on the Internet.
And if that sounds crazy...well... I'm not an analyst for a reason!