I can't believe how many people seem to think that Sony and Microsoft are locked in some kind of all out war just because they have competing video game consoles. Sony uses many Microsoft products windows on their laptops/netbooks, winmobile on selected cell phones etc. plus Sony doesn't own Blu-Ray they are just part of the blu-ray consortium.
so back on topic what physical medium? well Microsoft prolly don't know themselves but I would say blu-ray (25-50GB possibly 100GB) or standard DVDs (4.7-8.54GB) are the fore runners for optical formats with HD-DVD (15-30 GB) and VMD (20GB) as possibillities
alternatively some form of cards or carts are possible but not likely.
pure digital distribution is possible but not likely as the Internet speeds and data caps would severely limit the userbase and attach rate not to mention the cost of storage for all the games. sure the current model is showing strong growth but thats with games mostly under 250MB imagine downloading MGS4 sized games 20GB + and then you have to store it so every model would need a big HDD to store more than a few games and that would be very expensive.
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