Talk that Microsoft would relent and build an Xbox 360 with Blu-ray technology has flared on and off since the preferred optical disc format, HD DVD, went belly up in February.

They appear to be flaring again. The Economic Daily News out of Taiwan reports that tech company Asus has secured a contract with Microsoft to develop a Blu-ray-equipped model of Xbox 360 and plans to make it commercially available in time for holiday shopping.

This report appears to conflict with Microsoft’s insistence that Blu-ray was the old way and that digital distribution of high-definition content has become the company’s focus. But if true, the Taiwan report suggests that Microsoft may be positioning itself for a Christmastime sales pitch designed to dent increasing popularity of Sony’s PlayStation 3 console, which has built-in Blu-ray playback.

The major movie studios are all lining up behind Blu-ray now and hoping to glean some profit from the medium’s potential as a long-term storage solution for high-quality video. Ignoring that outright threatens to minimize Xbox 360’s influence in the gaming market — something Microsoft cannot afford with more graphically intensive games like “Grand Theft Auto IV” bound to come around the bend.