It's happening, Phil Spencer actually said:
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You'll actually see us come out with new hardware capability during a generation allowing the same games to run backward and forward compatible
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There's going to be a redesign at some point in this generation.
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Look at what is going on in the PC/Phones (specifically mentions 2 years for phones) ecosystem in terms of visuals and screen technology improving over time as an idea of an iterative console. Making a cheaper and smaller console overtime is "important" but wants to make sure taking your games with you and games improving is important.
Makes a point that backwards/forwards compatibility is incredibly important. Phil says Microsoft wants that to be a driving force for the platform.
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Basically, your current XBox One will run games throughout the generation, but the re-design might run them at a higher detail. He's talked a lot about backwards/forwards compatibility so I don't see a point where they fuck over the people that actually supported them since the console has pretty much bombed so far everywhere other than the US and UK.
Can't see it ever being a case of you picking settings either. Betting the game will pick the settings based on the console it's booted on.