The more and more I come on to gaming websites, the more I see discussion about how the 360 is limited in capabilities when compared to the PS3.  While this may be true when considering the overall hardware aspect, we really can't know for sure until the 360 gets similar exclusive engine treatment.  The one major hardware difference between the two, however, has always been the capacity of the optical discs.

This is why I believe MS should start pushing major developers to produce some "Digital Distribution Only" games.  I'll rundown some advantages and disadvantages of this plan:

Advantages: 

• The first and most major thing is data size.  Rather than being limited to just 6.8GB (per disc), the cap could be raised comfortably to at least 13-15GB for DD games.  This would allow for more resources and higher quality content for games.  Such as 720p or 1080p video content for cutscenes, higher texture levels, more artistic details.
• Another advantage to this method would be that the games run off of the hard drive, meaning developers could take advantage of this data transfer rate that exceeds optical media to make their games look and perform better.  Load times could be reduced, pop-in and screen tearing could be eliminated, etc.
• Piracy is another big thing.  If these games can only be downloaded to a 360 hard drive, piracy for these games would be non-existant.  Developers would (hopefully) be more willing to lower prices on DD only games as well considering the lower distribution costs.
• Using this method would also ensure that people can take all their DD games with them very easily.  If you ever LAN with people, you would no longer need to bring any game cases, or if you are just running to your friend's house quick, all you would need to bring is your HDD.

Disadvantages:

• Internet speed or no internet connectivity at all.  While some internet is fully capable of downloading a 15GB file in just a few hours, such as most cable and fiber optic network providers, others that are still on DSL or satellite would never be able to do this unless they let their systems download all night or all day.  Some people do not even have a 360 connected to the internet at all.
  
  • I think this could easily be countered though.  If the games are popular enough, people will find a way to get it.  Such as take your 360 to a friend's house to download it faster, or the retailers could setup some form of kiosk where you can have the game transferred to your hard drive in a matter of a few minutes.
• Download caps.  Even if you have super fast internet, you may be limited by download caps with your internet provider.  I believe most of these are in the range of 100-250GB which would limit you to as little as 7 games per month (if that was all you were downloading) or less given your other internet usage.
• No used market.  This would eliminate the ability to resell your games for those of us who just want to play a game, sell it, and play the next big game.

If you have any more advantages/disadvantages let me know and I'll gladly add them to the list.  I merely made this thread off of stuff I could think of in the last few minutes so I'm sure I missed plenty of arguments for both sides.

The main reason I think MS should do this, though, is because it would allow 360 games to be developed and distributed for less cost while upgrading the performance capabilities by eliminating what I believe is the 360's main bottleneck and main disadvantage when it comes to a PS3 comparison.

I'd say another disadvantage would be that (believe it or not) there are Xbox 360's out there that aren't connected to the internet at all (several of my friends actually), nevermind not having high speed internet. I don't think it's really fair for them to be cut out of the loophole or forced to find a way to connect to the internet, just because they either don't have high speed internet or aren't interested in online multiplayer games.

Yeah I think MS should push DD a lot more.  There's only one problem and that is internet speed (especially in the US)  But once we do away with dial-up and the slowest speed you can have is 5mb/s down then we will be home free!

That is why I mentioned the "kiosk" solution where retailers could simply load the game straight to the hard drive in a matter of a couple minutes.

Well I prefer to have a copy of a game :s. For arcade games I don't mind that much though..

But don't forget that their are countries who have a download limit.

Digital Distrubution is just another way to raise the cost of gaming.  Take out the competition of resale and with out a doubt the game companies will start raising the cost of games.  Look at DLC's, very few of them when you look at the creation cost vs sales price are anywhere close to as cheap as the full game from the consumer point of view.

I find it sad how these days people just seem to beg to be charged more for things than they are worth case in point Blizzards new flying mount. Anyone with any common sense would say hey wait a sec there charging me 25$ for something that took someone 15 minutes to create  when I can buy a full boxed copy of the game for $9.99

Companies like EA and Activision have flat out said all they care about is the profit. And as soon as other companies see they can charge whatever they want thats exactly what they will do.  And sadly the modern consumer who has way too much money apparently will fall in line like sheep to the slaughter.

This is unfortunate, but MS can always restrict pricing.  They have final say on content released over their network.  As for DLC, many companies in the last few months have begun offering free DLC to their customers.  Not all companies are bad.  While there is a risk they could try to raise prices more, I feel there is more than enough to keep that from happening with this system.  But as you said, most of that responsibility rests with the consumer to vote with their dollar.  If the games are selling for too high a price, they should simply not buy them.  In which case the developers will lower the price and learn from their behavior.

I really feel that this is what MS will have to do in order to keep their games relevant to competition. While DVD-9 may have been enough for the first few years, it is becoming ever more clear that developers can't cram all they want on that limited space. The main reason I think they may be going this way is with HDD sizes increasing each year and this is really the only solution I can see that will enable them to push games further on 360 than they are now (combined with better/refined engines of course).

The other hardware, such as CPU/GPU, is fine.  This is the only major bottleneck I still see.

there are a ton of reasons the psp go fails so hard but digital only is probably the biggest. being able to the connect to the internet, internet speeds, and peoples just general willingness to buy things online all seem to be pretty significant barriers today. and psp games are an order of magnitude smaller in size to boot.

exploring digital outlets isn't a bad idea but i don't think the download-only is a viable market for large budget games atm.

This is a good point.  I am not suggesting that they move to DD only for all games, but rather only for their top budget, largest games that need that extra space.  Some games are fine as they are and can fit well into the current 6.8GB size limit.  I just feel that for their biggest exclusives to push the performance barrier they need this increase in data size.