Well, I guess they couldn’t wait till E3 so they are showing off the external HD DVD drive at CES:

Highlighting key consumer products such as Xbox 360 and offering the first broad demonstration of the consumer features of Windows Vista, Microsoft Corp. Chairman and Chief Software Architect Bill Gates showed how the company is delivering on its vision for a digital lifestyle where devices, services and applications work together seamlessly. In his 10th annual keynote address at the 2006 International Consumer Electronics Show (CES) in Las Vegas, Gates demonstrated how Microsoft Windows Vista, Xbox 360, new mobile devices and the emerging wave of software-based services will deliver more connected and richly personalized experiences for consumers.

Building on Xbox 360 leadership in high-definition experiences, the company announced plans to deliver a new Xbox 360 external HD DVD drive in 2006. The new drive will offer millions of Xbox 360 owners the ability to easily enjoy HD DVD movies and will provide consumers with even more choices for experiencing high-definition content, in either physical or digital form.