Microsoft has been up to quite a lot, and it looks like the Xbox 360 is getting a much needed revamp for next year.

No confirmation has been given regarding a slimmer console, but Microsoft has been on a mission to reduce production costs for the 360.

The Taiwan Economic News has reported that the first wafers with 65 nm GPUs are now ready to join the 65 nm Xenon CPUs.  Still, there's no word on whether the GPUs and CPUs will get a die shrink.  Apparently, Microsoft isn't comfortable with making any sort of changed until they're more certain of the manufacturing process.

However, the TSMC (Taiwan Semiconductor Manufacturing Company Ltd.) is going to start producing the Valhalla chip, which will be the foundation of the Xbox 360's mid-cycle alteration, which has been dubbed "Xbox 2.5" or "Xbox 540" for Fall 2009.  The new chip will give Microsoft the opportunity to redesign the 360 casing if they wanted to go for a sleeker, slimmer look, following in the footsteps of Sony's PS2.

Rumors are also suggesting that Microsoft is looking for a more efficient cooling method, which will hopefully be an even cheaper alternative.  And by "cheaper" I hope they mean cost, not quality.  I'm not sure consumers would be too happy if the new Xbox 360 had worse heating issues than the current ones.

No, still no word on an internal Blu-ray drive.  I wouldn't get my hopes up.