Microsoft showcased the Xbox Media Center Extender (MCE) at the Intel Developer Forum (IDF) this week. MCE allows the user to stream various types of content, including HDD video, from a Media Center PC to the Xbox 360.

The 360 does not act as a full MCE in the sense that it does not, to our current knowledge, allow for recording and playback directly from its hard drive (optional). However, the 360 will play audio from any source plugged in via USB.

The requirement to have a Media Center PC has caused many gamers and gadget geeks to dismiss the MCE functionality of the Xbox 360, but that may be soon to change. The rumor quickly spreading is that Microsoft will include MCE capabilities in Windows Vista, and it will allow for this extension to the 360.

We caution that this is still only a rumor right now, but it does make good business sense. It could encourage both Xbox and Windows Vista users to upgrade the other component of their systems. With the price of the Xbox and the likely price of the Vista upgrade, the cost does add up quickly. Although, Microsoft could continue the push towards dominance by offering discounts to either if the consumer already owns the other piece.