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Blu-ray would be logical for MS, its much cheaper than when Sony first began investing in the software, it is the mainstream form of physical HD media, and its storage size will allow it to be used for at least all of next gen, if not 2 generations. I imagine Microsoft doesn't want to be seen caving into their enemy's format, but if they do anything else it will either gimp their physical distribution, or cost them more money for less bang(USB sticks, brand-new format disc, etc...). With PC gaming being dominately DD now, chances are MS will want to do that by the end of next-gen (no middleman = more $$$$$$).