CNN is reporting that Apple and News Corp., the parent company of 20th Century Fox, are in talks to bring movie downloads to the iTunes Store.

Fox, of course, owns the distribution rights to the Star Wars films. Currently iTunes movie downloads are at SD resolution, so there wouldn’t be any quality advantage over a DVD. However, there has been some speculation in the Apple community that Steve Jobs might have HD downloads in the works. The “iTV” prototype that was previewed at the “It’s Showtime!” Apple event a few months back has HDMI and component video outputs, often used to connect to HDTVs. Also, Microsoft has introduced 720p HD movie downloads as part of its Xbox Live service this week.

Apple certainly doesn’t want to fall behind in this race. The Microsoft Zune media player is being released as a director competitor to the iPod. The iTV will be released in Q1 2007 and there will be much speculation about HD iTunes downloads until then. Apple has a history of being secretive with new product launches and content additions to iTunes, so we probably won’t know about any HD downloads or deals with Fox until they actually happen.