During an interview that Microsoft CEO Steve Ballmer gave to Gizmodo, he was asked about adding Blu-ray to the Xbox 360. Ballmer replied, "Well I don't know if we need to put Blu-ray in there—you'll be able to get Blu-ray drives as accessories," hinting at the possibility of a BD add-on for the console.
Gizmodo followed up by asking Xbox spokespeople about this, and got a now-familiar no-comment response: "Our immediate solution for Blu-ray-quality video on an Xbox 360 is coming this fall with Zune Video and 1080p instant-on HD streaming. As far as our future plans are concerned, we're not ready to comment."
To be fair, Steve Ballmer also reiterates in the interview his opinion that the future of movie-watching is on-demand, not on a physical disc.
Update 10/23
Major Nelson (that is to say, Larry Hryb, Director of Programming for Xbox Live) has
denied the rumor in the following terms:
"During an interview yesterday, Steve Ballmer was asked about Blu-Ray and the Xbox 360. I wanted to clear something up. Steve was referring to Blu-Ray accessories for the PC. As we have said in the past, we have no plans to introduce a Blu-Ray drive for the Xbox 360. In fact, the future of home entertainment starts very soon when Xbox 360 becomes the first and only console to offer instant-on 1080p streaming HD movies. With a library of thousands of TV shows and movies to choose from, Xbox 360 owners can instantly watch the movies they want, when they want, in the highest form of high definition."