Microsoft's plan is to offer a basic virtual cable service through the Xbox 360 that allows subscribers to access ABC, NBC, CBS and the rest of the usual suspects.  Customers would then be able to add premium channels like HBO, Showtime and others at their leisure.  Microsoft also plans to offer bundles for those adding multiple channels.

The mystery as of now is whether Microsoft will be offering live TV or simply on-demand access.  It seems likely that the company will feature a combination of both, and may even allow customers to use their consoles as DVRs for recording content.

Microsoft has just started talks with TV networks, so we may not see this happen for a while, but we can certainly expect to hear something definitive in the next 12 months.