Current rumors seem to be all over the place. Fudzilla is reporting that the updated console will feature a modified AMD Radeon 7000 series GPU that's mated to a PowerPC CPU to form a single System on a Chip (SoC). Charlie Demerjian over on SemiAccurate also believes that the Xbox 720 will be powered by a 7000 series GPU. Demerjian engages in some speculation too:
So, time for a little speculation. Oban is being made by IBM primarily, so that almost definitively puts to bed the idea of an x86 CPU that has been floating. We said we were 99+% sure that the XBox Next/720 is a Power PC CPU plus an ATI GCN/HD7000/Southern Islands GPU, and with this last data point, we are now confident that it is 99.9+%.
However, IGN is reporting that the console will not be using the 7000 series GPU, but instead a modified 6000 series part, specifically the Radeon HD 6670 which offers support for DirectX 11, multiple displays, 3D graphics and 1080p HD output. This chip would make the next-generation console six times more powerful that the current Xbox 360.
For the record, the rumors I'm hearing are all over the place. Right now either rumor could be true, or neither.
However, given that we're unlikely to see a new console until at least spring 2013, and maybe even not until 2014, it makes sense for Microsoft to use the best GPU possible, especially given the long lead time. The problem with games consoles is that no matter how powerful they are on launch day, they're getting less and less powerful compared to new PCs (or more specifically, new GPUs and CPUs) by the month. What's more, now that we expect consoles to have a long lifespan (the Xbox 360 is essentially 6 year old technology, and the PS3 5 year old), making then as cutting-edge as possible at the time of launch makes a lot of sense.
I'm not even certain that the Xbox 720 will feature a System on a Chip design to be honest with you. While there are advantages to this design, it seems to me that Microsoft would have to get its cooling system worked out perfectly if it is to put the both the CPU and GPU together. Microsoft has numerous issues with cooling related to the Xbox 360, so much so that the Xbox 360 S features a number of modifications to reduce the possibility of overheating. A gaming device is going to pump out of a lot of heat, and it seems to me that having to handle the heat from both the CPU and GPU using a single cooler package is asking a lot.
What would you like to see in the next Xbox console?