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Um. New optical disc formats don't just up and get invented. Blu-Ray has already cemented itself in-place as the next major optical disc format, whether its taking over DVD's movie marketshare as quickly as analysts expected is immaterial.

If MS were actually planning on releasing a "XBox 720" that was anything more than marginally better than the 360, they would, indeed, use Blu-Ray, or a derivative format (which would still incur royalties to the BDA).

However, Since MS wants to compete with Nintendo, not Sony, because of Nintendomination, DVD-9 may be just fine for their "next" (read: "repackaged 360") console.