Well, I seriously doubt the Xbox 360 is going anywhere.
For those claiming HDD's are the way to go over optical media....seriously....HDD's aren't even close to be durable or long lived enough. You also need the faster more expensive 7200rpm drives to reliably do something like an HD movie.
For those claiming digital downloads....that is many years away. Seriously. In 2006 the goverment found that only 30 million US households had access to broadband. That's less than 30 percent. That 30 million was up from 7 million BUSINESSES and households in 2000. If you guesstimate that the access grows 23 million every six years then we're talking almost 50 percent penetration in the US alone by 2012. Again, that's JUST the US. There's a much wider world out there as well and yes, it DOES count. Besides the broadband access issue, it would also have to be a good deal faster than it is currently to make DLC a reality. The public isn't going to wait 30 minutes or more to download their movie that would load in about 10 seconds on a blu-ray player. People also will have to get over it and be willing to not own anything physically when purchasing a movie. Print media has been digital for longer than music has, yet book stores and libraries are hardly affected at all by digital availability of their media. No, I think that downloading content as the rule is at LEAST 10-15 years away from truly being adopted by the masses, and that's an optimistic estimate.
Sony was smart in the end, including the BD player. It may have cost them some sales and positioning in the console war, but they are still obviously going to be very successful with the PS3 and it benefitted them on two fronts, helping to ensure they won the format war which will bring them BILLIONS over the next 5-10 years. Of course that is IF HD media catches on and gets at least comparable with regular DVD in sales volume. That seems likely as it IS building up steam but it's certainly not a foregone conclusion. Time will tell!
