The long-awaited revamp of the Xbox 360, designed to store and display high definition video, has been launched.
The Elite machine is capable of storing more high definition video
The black Elite console has a 120GB hard drive and will go on sale in the US in April for $479.99 (£255). No details of a UK release were announced.
Updating the white 360 is the latest move by Microsoft in the battle to take control of the digital living room.
It comes just days after rival Sony completed its launch of the high definition capable PlayStation 3 (PS3).
The premium version of the PS3 costs £425 (599 Euros) in the UK and comes with a 60GB hard drive. It also contains a high definition Blu-ray player and an HDMI port, to connect the console to high definition TVs and display games in their full graphical glory.
However, neither premium nor basic versions come with an HDMI cable to connect the console to a display.
In contrast, Microsoft has said it will include the necessary cables with its Elite machine. But users will have to pay extra for a high definition HD-DVD player, currently costing £129.99 in the UK.
"With a separate drive, the cost is very similar to the PS3," said Paul O'Donovan, principal analyst at research firm Gartner.
The HD-DVD player was launched in December 2006 for the original Xbox 360, which is already capable of playing high definition content.
However the machine was limited by its ability to store the large files on its relatively small 20GB hard drive. An average high definition film would use up more than a quarter of the machine's capacity.
Both Sony and Microsoft have been criticised for shipping their consoles with such small capacity hard drives.
Microsoft said its new offering was in response to customer demand.
"Today's games and entertainment enthusiast has an insatiable appetite for digital high-definition content," said Peter Moore, corporate vice president for Microsoft's games division.
The hard drive on the new Xbox machine is six times bigger than the current high-end Xbox.
Microsoft has said it will sell the Elite alongside existing Xbox 360 systems and it will offer the detachable 120GB hard drive for $179.99 (£90).
Sony has said it has no plans to increase the size of internal hard drives, but users can add extra space by attaching an external hard drive.
The companies moves into offering downloads straight to the living room also puts them into competition with the likes of Apple, who launched its Apple TV box to stream content downloaded from iTunes to a TV screen.
"Apple TV is a great way to move content," said Mr O'Donovan. "So this maybe a response to the Apple TV rather than the PS3."
Earlier this year Microsoft also announced plans for a version of the console capable of being used as a set-top box for Internet Protocol TV, or IPTV.
This would allow the console to tap into offerings from telecoms and cable TV companies to pipe high-definition movies and television into homes.
However people like Mr O'Donovan believe that these features will not be enough to sway gamers to buy one system over another.
"Gamers buy these consoles to play games. Everything else is a bonus," he said.
Both consoles allow users to download content such as game extras, images and video to the hard drives.
PlayStation users can use the PlayStation Network, while Microsoft runs the Xbox LIVE online service.