Is Microsoft prepping an Xbox set-top box?

Microsoft is reportedly prepping an Xbox set-top box that could potentially be positioned as a low-cost alternative to Redmond’s flagship console.

Such a device could help Microsoft further increase its presence in the living room, while offering consumers a choice between a set-top box or a full-fledged next-generation Xbox system.

According to The Verge , the rumored set-top box is actually part of a two-SKU strategy for Microsoft’s next-generation of Xbox hardware that will be unveiled in 2013, with a release date scheduled ahead of the holiday shopping season.

Interestingly, the device is said to run on the “core components” of Windows, with full support for casual gaming titles instead of full Xbox games typically loaded on a dedicated console.

“Although hardware specifications aren’t fully locked down, we understand Microsoft will use a chipset to enable an ‘always on’ device that boots quickly and resumes to provide near-instant access to TV and entertainment services,” explained Tom Warren of The Verge.

Warrrn also noted that Microsoft’s Xbox set-top is part of a broader effort to ensure the core architecture for the next-generation Xbox is scalable enough to run across a number of devices.

“We understand that the company could opt to combine its core system for the next Xbox with a phone stack to deliver a phone capable of running a full version of Microsoft’s Xbox Live services… It has also investigated providing this functionality to TV OEMs, who could include the core services as part of a licensed Xbox television set,” he added.

Personally, I think an Xbox-branded set-top box is a fantastic idea for Microsoft. However, I’m unsure as to how Redmond will be dealing with the issue of fragmentation, namely, promoting certain games that only work on a full-fledged console, instead of on the Xbox set-top box. Certain franchises, like CoD and Halo, come to mind. Xbox Live games may be just fine for casual gamers, but even they might want to play the major franchises at some point.

Then again, the Xbox set-top box may ultimately make it to market as a stripped down cloud-centric console, without an optical drive or much in the way of local storage. Perhaps the CPU and RAM will be sufficient to run games like Halo and CoD, because I really can’t see Microsoft promoting a next-gen device without support for major FPS franchises. Can you?