We have been talking with some of our sources that indicate that the next Xbox 360 update is inching closer to actual release; and in fact it appears that Microsoft will be widening the beta test for the new update prior to actual release to include some members of the media.

While it isn’t yet exactly clear when Microsoft will release this update, what is now clear is that a couple of new announcements will not make it into this release, including the Facebook access, Twitter access, Zune video, and Last.fm. From what our sources tell us, Microsoft is targeting a fall release for at least some of these new additions.

Netflix will get quite a bit of overhaul with the addition of Movie Parties, Queue Management, Enhanced Playback technology to address bandwidth issues, and more advanced friends info.

The Avatar Market place will launch with this update that will include the ability to download what are being called premium clothing items and props. Branded apparel is going to be offered from a variety of games. The awardable functionality will also be added, which will allow titles to award avatar clothing items or props to players for select titles. Of course, some of these new features will be items for purchase.

Games on Demand will debut, which will mark the ability to buy and download full select Xbox 360 titles onto the Xbox 360 hard drive, which will be the first move to test Xbox owner interest in electronic delivery of mainstream Xbox 360 titles. Many details have yet to be sorted out on this, but an interesting note is that manuals for Xbox 360 games are going to start appearing for download on Xbox.com. It is unknown if this will only be for titles offered via the Games on Demand program or if all Xbox 360 titles will start offering their manuals for downloading and printing for free.

User Rating will be coming for titles in the Xbox Live Marketplace which will allow users to rate the games that they have played. Xbox Live Parties will also be getting some tweaks with enhancements and streamlining of the party process as well as fixes to the reconnection abilities. Video display enhancements will be coming with a new display discovery mode, as well as an option to override the chosen format to improve the video coming from your Xbox 360.

A variety of other improvements and bug fixes have been made, as well, including a new Gold Memory Veterans symbol to show people how long you have been an Xbox Live member; the Community Games will be renamed and revamped to be called Indie Games; New Achievement browser; new Achievement tracker; improved and streamlined navigation on the dashboard level; block voice messages fixed; friends lists will be able to be sorted; and memory file time stamps will now appear to help track multiple file versions.

It looks like a lot of new additions to the Xbox 360 and many of the enhancements look to be welcomed additions for the first major release since the new dashboard overhaul was released. While as we suggested above, Microsoft has not yet committed to a release date, we continue to receive whispers that they would like to get it out before the end of the summer, if possible. If the testing goes well and they don’t find many bugs to swat, that goal might, in fact, be achievable.