@tirminyl,

again I don't see digital download as the future, it will be a hold day in hell when people ditch physical ownership for digital ownership.. read my previous post, there are issues with DRM and limited downloads... Blu-ray is here to stay for a long time for many years to come.

Digital download might only be a viable choice for rental alternative but not for permanent purchase.

id Game CEO John Carmack just last month disparaged Microsoft's Xbox 360 due to many poor choices they have made such as sticking with DVD and having no hard drive on all models. He also praised Sony on future proofing the PS3//

Think about it, games will only get bigger, and disc space is limited, games like Project Gotham Racing 4 had to have content cut out in order for it to fit on a single DVD-9 disc. You could have multiple discs but as John Carmack indicated there is a "service fee" per disc from Microsoft (Not royalty, but cost of manufacturing).
Also if you have a sandbox game or a simulator that requires the game reside all on a single disc DVD-9 will be a problem.

Also your wrong, the advantage Blu-ray discs had over HD-DVD were space, a dual layer Blu-ray disc holds 50GB vs dual layer HD-DVD disc holds 30GB, space will always win. That was one reason Beta tapes lost against VHS, because consumers complained that you can't even record a football game on Beta because of its 1 hrs limit. VHS 6 hrs.

Another reason Blu-ray won was because Sony currently owns the largest collection of movies in the world (including merger library), and has one of the largest studio in the world.
If a powerhouse studio never agrees to HD-DVD in a million years its a futile effort.

Also don't forget Microsoft only owns 2 active game studios, Lionhead and Rare, their future doesn't look all that bright when you look at the long term picture.
Play the scenario out in your head... EA, Capcom, Konami, Activision, will continue to crank out multiplatform titles with no exclusivity, and as time goes by platform exclusive titles will be the thing of the past..

As Scott mentions, when the dust settles in a couple years, the MAJOR differentiating factor will be FIRST PARTY STUDIOS.
No one can deny Sony holds some of the strongest studios in the world:
Sony Computer Entertainment Inc.

* Clap Hanz – Everybody's Golf series
* Polyphony Digital – Gran Turismo series
* SCE Japan Studio (Project Siren Team, etc.) – Ape Escape series, LocoRoco
* Team ICO – ICO, Shadow of the Colossus

SCEI Subsidiary Divisions
Sony Computer Entertainment America Inc.

* Incognito Entertainment – Twisted Metal series, Warhawk
* Naughty Dog – Jak & Daxter series, Uncharted: Drake's Fortune
* SCE Bend Studio (formerly Eidetic) – Syphon Filter series
* SCE Foster City Studio – Jet Li: Rise to Honor
* SCE San Diego Studio – NBA series, MLB: The Show series
* SCE Santa Monica Studio – God of War series
* Sony Online Entertainment LLC. – EverQuest, Star Wars Galaxies
* Zipper Interactive – SOCOM: U.S. Navy SEALs series, Massive Action Game

Sony Computer Entertainment Europe Ltd.

* Bigbig Studios – Pursuit Force
* Evolution Studios – World Rally Championship series, MotorStorm
* Guerrilla Games – Killzone series
* SCE London Studio (includes Team SOHO & Camden) – The Getaway series, SingStar series
* SCE Studio Cambridge (formerly Millennium Interactive) – MediEvil series
* SCE Studio Liverpool (formerly Psygnosis) – Wipeout series, F1 series

Sony Computer Entertainment Korea Inc.

* SCE Korea – EyeToy: EduKids, GloRace: Phantastic Carnival

Don't think short term, look at the big picture. Right now Microsoft's huge and frequent price cuts reek of desperation... cutting the price has always been last resort, why would you cut any potential profit and get into the negative unless you were afraid to lose.

It doesn't matter what Microsoft does, they can jump around waving their arms saying 'look at me' all they want. Sony has always treated the Playstation brand as something they build slow and steady, regardless if it was PS1 or PS2.

I have to disagree with you rabbitc,

Physical media is far far from being dead. With DVD sales 7 billion strong, we won't be moving onto full digital distribution any time soon.
I would say Blu-ray will last about 7 - 8 years, until the next format arrives...
Most average consumers like myself are weary of complete reliance on digital distribution due to DRM issues and lack of actual ownership.

I can see movie rentals moving towards that space, but not as a permanent purchase option. Many companies like Apple, Microsoft and even Sony have locked down these digital downloads to a limited amount. Which will really hamper portability and retriveability.

What happens when your hard drive goes bad as they all eventually do?
Not only do you lose the movie, you may have reached your download limit.

From what I see Sony has the strongest foundation with their 20 some first party studios, while competitor Microsoft only has two active studios at the moment (Rare and Lionhead). As time goes on, third party exclusives will go the way of the dinosaurs.

If you follow the dots you can see Microsoft is in for some rough times ahead.