Sorry if this post is redundant. I've been searching through all the sites but no one mentions what it's going to use. Anyone with any news on this?

Software for the PlayStation Vita will be distributed on NVG Cards, a new proprietary flash card format, rather than on Universal Media Discs (UMDs) used by the original PlayStation Portable.[5][15] NVG game cards will be available in 2 GB and 4 GB sizes. 5 — 10% of the writeable space will be reserved for save data, patches, etc.[16] Higher-capacity game cards are planned to be made available for future releases.[17] - http://en.wikipedia.org/wiki/PlayStation_Vita#NVG_card

Obviously it will have digital distribution to some extent, but PSP:Go showed Sony that the market is not yet ready for DD only. If the Go had done better, Vita may have ended up pushing DD more strongly. Perhaps in 4 years time there will be a Vita:Go experiment.

Edit - Improved source, more detail.