More storage allows developers to be lazy with other aspects of development like compression so they take the extra size for granted. It saves them money too I guess. I doubt we'll start seeing the effect of Blu-Ray's storage capacity in games for a while, but saying that Ubisoft did come out and say they struggled with the DVD storage for assassins creed...might come round and bite microsoft in the ass sooner than expected.

 5 times longer means costs are roughly 5 times higher(not always true, but costs will definetly be driven up a lot), which means sales need to be multiples larger too in order to make a profit or at the least break even.  Unfortuneatly, that type of growth doesn't exist.

Simmer down buddy. I said theoretically. Also don't get mad at me for some short games *lookin at you heavenly sword* I didn't develop them.

All I'm saying is games can be longer than the DVD's let them be, so why not use up the space to make games longers and/or better.

 didn't it cache data to the hard drive?

 Unfortunately no because harddrives aren't standard on all 360s. You have to remember at least 20% of 360 consoles have no harddrives so making installation a must would be highly improbable and I'm pretty sure Microsoft doesn't allow it anyway.

Can someone tell me how the 360 patches games if they have no standard HDD?

If you don't have a HDD, you can't get patches or play online.

Uncharted used 22GB of the 25GB, and everything was compressed.

Uncharted was like Motorstorm and the Killzone demo. Sony deliberately doesn't compress many second and first party games so they can get PR value out of the "neccessary storage."

Contrary to the belief of many in this thread, compression is a cost-saver. Whilst compression is cheap to do, storing what would otherwise be masses of data on servers that often have to transmit development information to multiple locations can get expensive.

The 360 would be able to do double layer DVD and get 9Gb in a game.
Blu-ray single layer is 25Gb or 50Gb dual - both use compression it's essential to faster load times.
The Ps3 can use it's HDD to buffer data from the optical drive for faster random access (the 360 cant as it's not standard).

Keep in mind only a total of .5Gb RAM in either machine , means that to use all that data it has to be streamed through gradually, only 1/50th of a single layer blu-ray disk can be in memory at one time.
The ratio of real memory to Optical storage has improved though we have ~10* more RAM, while the blu-ray disk is ~6* larger than dvd.

Some type of games will never need more than a CD or DVD while those with many levels may well need 25Gb or even 50Gb  will be interesting to see it.
On PS2 - in SSX tricky for example they had On disk interviews with all the actors in the game , so if developers wanted to they can include the making of and so as extras or even talk about design etc - most movies these have have this sort of extra material why not games too i for one find this sort of thing quite interesting even though it has no direct impact on the gameplay.