Right, it would seem too late to switch to HD-DVD in the X360.
But their support would mean a hell of a lot more if they did put it in the X360. So the OS will support it but Dell and HP will just put their own software or license it from someone else to support the Blu-Ray drives they plan to ship.
Anyways, MS hates the fact that Blu-Ray is using a Java-based interactive layer rather than the IHD that HD-DVD will use. They also hate that the Blu-Ray copy-protection scheme uses a virtual machine (not necessarily Java) rather than just the AACS system of which MS is a founding member.
MS is pushing for managed copies, which the story alludes to, which will allow HD-DVD discs to be ripped for home media servers and portable video players.
But given all these facts, their previous "neutrality" was never credible. There was no way they'd back Blu-Ray. But now, with the HD-DVD studios wavering, it's a strange time for MS and Intel to throw their support to HD-DVD now. Either that or they realized it's now or never with HD-DVD on the ropes (Toshiba has been unable to deliver players for testing by replicators and the HD-DVD studios have held off on releasing titles this year, pretty much scuttling Toshiba's plans to intro the product for this Xmas).