Microsoft CEO Steve Ballmer has let a large cat out of the bag regarding Xbox 360 Blu-Ray plans. Yup, looks like it’s happening one way or another.

The big man was in conversation with Gizmodo.com, ostensibly talking about Project Natal. However, when quizzed about the notion of bringing Blu-Ray tech and the 360 together, he dropped the following bomblet almost too casually:

“Well I don't know if we need to put Blu-ray in there — you'll be able to get Blu-Ray drives as accessories.”

And that seems pretty unequivocal to us. Although Ballmer is quick to throw in the caveat:

“I think probably the future of movies is mostly on-demand now, as opposed to the distribution on physical media. So we’re just going to keep driving forward and trying to make the best entertainment – overall entertainment, not just gaming – but overall entertainment experience we can.”

So there it is – one of Microsoft’s biggest bigwigs says that Blu-Ray is coming to Xbox 360, and by way of some kind of plug-in external drive by the sound of it. Fingers crossed it won’t be some hulking beige monstrosity like the ill-fated and mercifully short-lived HD DVD drive either.

Meantime MS plans for digital distribution continue apace, with instant streaming 1080p movies via the forthcoming Zune Video service on Xbox LIVE. Can’t wait to see what that’s all about…