Microsoft is apparently upgrading the Xbox 360 CPU early 2007 a semiconductor manufacturer said.

Chartered Semiconductor of Singapore says that they will manufacture the Xbox 360 CPU with 65nm technology. The current Xbox 360 CPU is made with 90nm.
The reason for this move can be the over heating problem and of course cutting cost. I do not think Microsoft will improve the performance of the new Xbox 360, which would cannibalize the Christmas sales if consumers would get confused and think they better wait until the Xbox 360 with a faster CPU. More details on VNUNet.