Microsoft will launch an updated HD DVD drive for the Xbox 360 in 2008, it said at its 25th hardware anniversary in London today.

Mark Bennett, Microsoft's European business development director for HD DVD, demonstrated the technology's advanced interactive features and pointed out that Paramount and Universal Studios are exclusive to HD DVD.

"The interactive features actually work on HD DVD whereas Blu-ray titles are six to nine months away from getting features that actually work," Bennett said, referring to Blu-ray's current inability to do picture in picture videos.

Bennett also said "there are more plans to incorporate HD DVD into the PC platform in the future."

The original Xbox360 HD DVD drive, which launched in November 2006, was fully compatible with Windows PCs and proved a hit for being the cheapest high definition drive on sale.

The event, which was celebrating Microsoft's 25th anniversary of making computer hardware, saw the software giant revive its PC gaming peripherals with a new sidewinder mouse and new ergonomic keyboards and mice.

There were also multi-coloured Xbox360 controllers and it said it would sell high definition download movie rentals over its Live service before Christmas in the UK – one of the first such services to hit these isles. Pricing hasn't been announced yet, but it demonstrated a 720p movie measuring 4GB costing 480 credits, which equates to about £4.

Update: Microsoft has since rebuffed the story, which you can read more about on our blog.