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MS are not going to drop support of the 360 anytime soon.

It is possible that they will release a new console in time for Christmas 2010 but certainly not before.

I think that when a 720 is released it will be a scaled up version of the 360 hardware, maybe 6 cores instead of 3, an uptodate graphics card and, crucially, much more ram and a mandatory hard drive.

This would make it almost out of the box for the new console to be backwards compatible. I also predict that you will be able to see friends lists regardless of whether they are online on the 360 or 720.

Game publishers with successful franchises on the 360 or ps3 will want to release at least 3 games per franchise in the current generation as production cost reduces massively for versions 2 and 3 of a game. (Infact hasnt it already been announced that Gears 3 and Mass Effect 2 and 3 will all be released on the 360).

As far as tech goes im pretty happy with what the 360 can do and how the games look / play, the leap of games technically from 360 to 720 is not going to be that large unless you have 1080p displays.

I still think MS or Sony could make a bucket load from a top notch WoW clone as well.