We've been tipped off that Xbox 360s shown at the Digital Life show this past weekend at the Jacob Javitz were sportin' 40GB and 80GB hard drives. We can't confirm it with photos or anything, but according to our observant tipster one Xbox 360 was shown to have 38 GB of space remaining when a Microsoft representative navigated a "memory" section for a few brief moments.
We wouldn't post this if it didn't make a lot of intuitive sense. It also jives with our theory that the Xbox 360 is a trojan horse for direct-to-consumer broadband delivery of triple-A titles. 40GB drives are just the beginning. Before the Xbox 360 generation is over, there will be multi-terabyte add-on storage options.
Update: This is not to say that the Xbox 360 will ship with anything other than the 20GB drive that has been announced. We confirmed with Microsoft that the console will launch with only the 20GB hard drive initially. This is more about evolution of the console post-launch.