Core Magazine has reported that a few underground Dreamcast developers from Nagoya University have made a functional Dreamcast hard-drive. You can also check out some pics of the drive here. Here are the details directly from this page:

While Sega has canceled Dreamcast hardware production, that hasn’t stopped groups of talented programmers and engineers from experimenting with Sega’s console. One of the most recent creations comes from a group of Nagoya University students who created a functional Dreamcast hard drive. The drive is connected through the modem port on the Dreamcast utilizing a homemade IDE interface board and the NetBSD operating system. Below are a batch of pictures of the unit itself, as developed by Kiyoshi Ikehara, Izumi Tsutsui, Masaki Satake and Tatsuya Nishiwaki.

I am thinking if they could get this hardrive to lik-sang, jandaman or other we could see mass production of the hard drive and full support from us at dcemulation.org. Thanks to PlanetDreamcast for the head’s up.

*Update*
ss_steven has informed me of the site which has the tools, and instructions needed to create your own hard-drive which would work on the dreamcast. Check out the official site for this here. According to ss_steven the interface was actually created by Bitmaster his site.