People still aren't sure whether or not the Xbox 2 will have a hard drive or not, or whether or not it's a good or bad thing if it does... or doesn't.
A News.com article pointed out by Evil Avatar doesn't shed much light. Although it says a patent granted to Microsoft on Tuesday for Xbox-related technologies specifically mentions a hard drive, forumgoers pointed out that this particular patent was applied for three years ago, and others point out that a large flash storage device like those made by M Systems is a "hard drive like device" so this might not mean anything.
In other words... move along, nothing to see here.