Microsoft has apparently identified that some older Xbox 360 units are incompatible with the latest update that the company is pushing out. According to our sources, the issue is with the DVD-ROM drive used in some units; because Microsoft used a number of different drives over the years, it really isn’t surprising that some drives cannot be firmware updated to support the new XGD3 disc format.

According to industry sources, the new XGD3 disc format serves two actual purposes, the first of which is that it modifies the structure of the disc itself so that developers have almost 1GB of extra storage space per disc; and secondly, the new XGD3 format introduces a number of new anti-piracy security measures to prevent the copying of game discs. Developers that we have spoken with who have knowledge of the new XGD3 format claim that Microsoft has put significant work into improving their copy protection and will be working with studios to take it even farther.
As part of the latest update, Microsoft is flashing new firmware into the actual DVD-ROM drive. This means if you get the update and you have some other firmware flashed into your DVD-ROM drive, Microsoft is going to automatically re-flash the drive back to the latest revision of the new factory firmware.

Microsoft has identified consoles that contain DVD-ROM drives that are not compatible and Microsoft is offering to upgrade those users to an Xbox 360s with a 250GB hard drive. Of course, you will have to go through the process of filling out the online form and requesting the replacement unit; but there is no cost involved, and once you return your old console to Microsoft they will even give you one year of Xbox Live for free as part of the deal.

Since no games that we know of are currently out using the XGD3 format, this is really not an issue today. However, our sources tell us that Microsoft will be moving to the format soon and that is why they are contacting users of incompatible consoles to make sure that they get upgraded. It is actually nice to see Microsoft being pro-active and trying to get out in front of this issue. For most users, being able to upgrade to a 250GB slim console for free is actually a great thing; and best of all, it is free.