[At this year's CommVEX, Jim Drew] will be demoing the uDrive (micro-Drive), a cycle-exact 1541 drive emulator. Under 1 square inch, the uDrive is designed to be fit inside the C64/128/SX-64 and allows the user to use .d64, .g64, or .scp image files (which means ANY disk, copy-protected or not).
Jim says, "It basically *is* a 1541 disk drive without the mechanical drive portion. It supports any type of ROMs (CBM, JiffyDOS, etc.) as image files. With just a firmware change I can emulate other drives, like the 1571, 1581, CBM hard drive, etc. It uses a micro-SD card for holding the files."
"It will be released as a 1541 emulator initially, with free firmware upgrades to make it a 1571, 1581, CMD hard drive, CBM hard drive, etc."
Jim assures me that it will support Burst mode when used with a C128!