Here’s the quote from blogs.msdn.com:
The Xbox 360 HD DVD Emulator is now available as a free download on Xbox Live Marketplace when you request a token at http://www.thisishddvd.com/emulator/.
Why is it free now?
This decision was made in light of Toshiba’s recent announcement that they are discontinuing their HD DVD business. The reasons for offering the emulator for free are two-fold.
Microsoft is committed to interactivity and giving content authors the ability to create more compelling entertainment experiences. The specification for HDi was developed with significant input from studios like Warner Bros. and Disney based on scenarios they desired in the next generation format. Offering the emulator for free allows a greater audience to experiment with interactivity with little to no cost.
What can I do with this?
The Xbox 360 HD DVD Emulator allows you to run complete HD DVD projects – video, audio, and advanced interactivity – on your Xbox 360 from an external USB drive or networked PC. If you’re interested in learning more about HDi and how to create your first HDi application, start in the April 2007 section of this blog and work your way forward.
Do I need an HD DVD add-on drive to use this?
Yes! Yes you do! But, lucky you, they are now available for $50. Sweet.