I personally don't see any serious hardware upgrades happen with Natal - there are no applications now nor on the horizon that suggest this is even necessary for anything. If there are any significant spec-changes, it will mean that Microsoft went ahead with developing an Xbox 720 and launches it together with Natal maybe. Much more likely though we'll see a new SKU for Natal as mentioned by other people with improved built-in storage options.
I think right now though the consensus is that neither consumers nor publishers want the new console cycle to begin, and that the focus is going to be on motion controls first. I would think that means we will see new machines maybe announced in 2012, though release will follow soon after the announcement probably. But we'll see, it could even be later, depending on whether for instance true 3D technology is going to catch on, because I definitely think that Motion Control is going to accellerate the use for that technology, there's also a renewed interest for it coming from the movie industry, etc.
I think right now though the consensus is that neither consumers nor publishers want the new console cycle to begin, and that the focus is going to be on motion controls first. I would think that means we will see new machines maybe announced in 2012, though release will follow soon after the announcement probably. But we'll see, it could even be later, depending on whether for instance true 3D technology is going to catch on, because I definitely think that Motion Control is going to accellerate the use for that technology, there's also a renewed interest for it coming from the movie industry, etc.