Is a Xbox Lite Necessary?

The rumour-mill overloaded recently when ‘MS Nerd’ supposedly leaked information about a new Xbox console from Microsoft that isn’t going to be the next main console, but a Lite version which will be like a kind of precursor to the Xbox 720 or whatever it will be called.

The question is, would it really be financially viable to bring out a Xbox Lite that is supposedly going to be ‘core-essential’ or something, which means it could be based on the 4 GB console that, as we know, has no hard drive, but the Lite console could or should be a physically smaller console that may potentially have no DVD drive?!

It was also reported that it would cost £100 ($150 USD approx), but this is where all speculation gets interesting. If it’s supposed to be able to play all Xbox 360 games, it’s going to need a substantial hard drive of at least 250 GB in order to play titles from Games on Demand as well as XBLA games.
If it is to be physically smaller than the typical console, just how small will it need to be? Big enough to house a motherboard with RAM and graphics card and the HDD of course, then the two or three fans needed to keep it cool. What will the hardware be based on, the existing Xbox 360 or nexBox specifications? If Microsoft do actually make the console, the way of keeping cost to a minimum is removing the disc drive and making it physically reduced in size, if it’s an idea of what they’re planning for their next generation Xbox, it could turn out that we will see a smaller, compact console.
It doesn’t seem a viable option to launch such a thing when all eyes and ears are veered towards ‘Durango’, the proper next-gen console MS are in the process of developing, but is just as controversial with the proposed removal of the disc drive and be digital only. This Xbox Lite rumour needs to stay just that, a rumour which will hopefully get buried along with previous stories of ridiculous hardware.