Right on FishyJoe!

Given Microsoft owns part of the tech used for blu-ray already (VC-1) and is a member of the consoritum for another part (AACS), I definitely can't see it being a problem.

Well, let's put the question in another way:

Does Sony want any help they can get to make Blu-Ray successful?

I believe the answer is yes, they do.

Seeing as they (they being the Blu Ray collective, not just Sony) would make money from it, I doubt they'd deny Microsoft if it came to that. They might if they wanted to damage Microsoft, but it wouldn't be hard for Microsoft to just use a different format. Proprietary media isn't exactly uncommon in consoles. They could even use HD-DVD even if it isn't the standard. In fact, it wouldn't suprise me if Microsoft and Nintendo were to snub Blu Ray and opt for HD-DVD or some other format in their next consoles.

Technically since its just for the games Microsoft could use HD DVD for their games in the future, like how the PSP uses UMDs even though its a "dead" format for movies.

If Sony tried something so utterly stupid, MS would sue the shit out of them and win, especially if Toshiba shuts down HD-DVD production.

In any case, Sony wouldn't want to do that because they want the royalties from Blu-ray.

I don't think there are as many business decisions are based on spite as some people seem to think.

 360 games are only produced on DVD. Any effect it would have would be on the external drive and if they decided to integrate it in the future, but even in that case, games would still need to be on dvd for backwards compatibility.

In all realism, I doubt you will see a Blu-Ray drive with X360 this gen. Not that Microsoft or Sony would prevent it, but Microsoft got its HD service going and no sense of adding another peripheral when they already have an HD add-on accessory this generation. Rather or not "Blu-Ray is great for making games", Microsoft is not going to release any game via Blu-Ray or HD DVD for 360. It always been stated by them that will not splinter their market. For the most part, they will release their games for the lowest common sku model, which is the X360 Arcade.

As for their next gen console, we will have to wait on that. For one, I see that what ever happens to HD DVD movie content, the format is still a viable storage media which Microsoft can easily use for it next gen proprietary game media. But I do see Microsoft adding the official winner of the HD media wars to its console playback feature set. So it might even be possible that you may see both HD DVD and Blu Ray in one console, especially if its cheap enough.

I really think that Sony and Microsoft will be toned down a bit for the next high end, all in one, super consoles due to the Nintendo console resurgence. I am personally happy with this, because consoles have got out hand with it features and causing it to be financially unaccessible (READ) to the middle class and below.

If MS wanted to release BR player Sony and the rest of the BR crowd would happily let them. I'm not even sure they could legally refuse the use anyway.