This is no rumour, Microsoft is said to be in talks with Sony to add Blu-ray drive to XBox 360.
From Financial Times: A Blu-ray drive in a 360 would make Microsoft more competitive with the PS3, but it would also mean extra revenues for Sony’s electronics division. It would also add further cost to the 360, meaning a premium edition of the console could be necessary. A Blu-ray drive could be incorporated in its top-of-the-range Elite Xbox, or Microsoft could again offer a drive as a plug-in peripheral.
Source: Sony: Microsoft Wants Blu-Ray Xbox