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Comrade Tovya said:

If it were me, I would probably chose HD DVD as the physical format because Toshiba abandoned it, and of course MS is/was part of the HD DVD Consortium and therefore it is partially theirs anyway. Hence, the royalties would be almost nothing to pay out, the disc space is comparable to Blu-ray, and the technology is cheaper and easier to produce discs on than Blu-ray. Plus, there are literally hundreds of thousands of HD DVD drives out there that MS could buy for pennies on the dollar, making the console still relatively cheap.

Of course they could use HD DVD, but I'm not sure that this technology will be cheaper and easier (than BR) to produce in 2 or 3 years...

If they don't use HD DVD, maybe they could use some Flash format as SD, miniSD....