GamesIndustry.biz is reporting that Microsoft says Xbox games will need to be recompiled to work with Xbox 360. This would seem to indicate-- although it is not yet clear-- that even your old games will have to be repurchased in order to run-- unless the console can recompile it by itself, which seems extremely unlikely. Not good news for those banking on this feature. Thanks 3Suns, who linked to this in the HBO forum.
UPDATE: I'm retagging this as a rumor. Major Nelson has already busted it. Move along, nothing to see here.