The guy has a certain point. We will obviously see a day when all physical media is vastly eclipsed by downloadable content. Eventually physical media will die out and is doing so rapidly in the music industry - mainly because the file sizes are so small, typically just a few MBs per song.
However, with visual media it's quite a lot different because of the file sizes which are currently increasing dramatically with HD and will no doubt do so again with the advent of 3D. The same is true with games, over the last 20 years the file size has massively increased from literally a few KBs on the NES to GBs on the PS3, 360 and Wii.
Really Microsoft are going to have to be pragmatic and adopt a new larger method of storage for the next generation and when they do this the logical choice would be Bluray. Games are far too large for the average more casual consumer to download, they just want to purchase their game and play it.Plus to the casual gamer picking up the odd title at the supermarket is what they do and enjoy doing.
The days of disks and high street stores for digital media will one day be up, but we're a long way off that point just yet.
