Microsoft has carried this idea of digital delivery for entertainment for a long time now, and is probably one of the main motives for beginning with the xbox 1 - get marketshare in the living room for a multimedia device that will process enormous amounts of digital media, all at substantial profit.

A lot of people like to have their physical media for obvious reasons - 1.) it can't be erased 2.) proof of ownership 3.) able to resell 4.) physical organization 5.) lack of technical skills in managing digital media library and so on.

Personally, I love digital media. I've been 'minimizing' my posessions for a while now, and it's such a relief not to be burdened by so much crap. If I had to move tomorrow, it'd be a hell of a lot easier for me than a lot of people I know.

Not to mention that digitally distributed media doesn't have the environmental impact of physically produced goods. No plastic that will live on longer than we can imagine, no CO2 emissions. It's a good way to reduce your carbon footprint.

I do realize a lot of people don't think like me though, and there is definitely some uncertainty and fear when it comes to the safety of your digital library. But to me it's a great thing, makes a lot of sense personally, and is environmentally friendly.

Lol most players bitch at DMC4 5 Gig install and Steve Balmer thinks that in 5 years from now people will download every game from the net before playing them ?

I hardly see that happening. That would require Xbox720 to come with Terabytes size hard drives and imagine the headache if your HD stops working..........( go go redownloading your 20 game titles to your new HD, provided DRM even lets you). Forget bringing a game to a friend house to play with them too...........

Or are we all gonna have to run RAID system for our entertainment systems ? :P

As much as i hate MS and the XB barnd i do not think this is spin per se.  They have been behind Digital Downloads for awhile but i think they are ahead of themselves in the timeframe.  If HD takes off, Blu-ray will be the format not HD in the next 5-10 years.  After that though Downloads will be the way to go.

I share your motives for wanting to swith to digital media. I just don't think the 5 year timeframe is realistic. Certainly in urban areas it might be, but in large countries with low population densities, such as Canada and Russia, I don't expect enough rural areas to have the infrastructure necessary to have digital downloads in a timely manner.

To continue with the Canadian example:

The Statistics Canada 1996 Census found that 22% of Canada's population (6.4 million) live in rural areas. This is based on a definition of rural areas as "sparsely populated lands lying outside urban areas" or in other words those areas with a population concentration of less than 1,000 and a population density of up to 400 per square kilometre.

http://www.rural.gc.ca/cris/faq/pop_e.phtml

Rural statistics for 2001: http://www40.statcan.ca/l01/cst01/demo62a.htm

EDIT: I don't think it would be financially viable to set up the infrastructure for those people especially given the cost of the last mile (http://en.wikipedia.org/wiki/Last_mile). Which means that, just in Canada, 22% of the population probably would not have access to the media. 

The only thing I could see happening if we had the speed, is a remote play type of thing, where all they send you is screen updates at 30-60 fps, and keep the games running on some high powered server somewhere.

While this could be a cool idea, with monthly subscriptions for all games all the time or something like that, it's decades away. Also when it comes, it will take 5-10 years to then remove Blu as a viable resource. MS will be on it’s 3rd or 4th operating systems away from Vista by then. Saying adding Blu support for Vista is not really something they "need" to do, they just will do it for the fringe people who might not go with digital downloading, is spin.

And, there is no doubt in my mind that the next x-box will have an optical drive in it. No doubt.

Full digital distribution may not be that far off. You can get a full 1080p movie(90mins) in WMV on a single layer DVD and at full tilt my broadband goes at about 750-800k, which equates to about 1h20m to download, meaning you could stream it in realtime.

Maybe for movies, but what do you do for games ?

The whole idea behind the need for bluray is the reason why Wii is the number one console right now.

While i'm sure MGS4 will be awesome, we are treading on excess at this point when it comes to budgets, game size and development time. It would be hillarious if MGS4 gets outsold by something like Carnival Games.

In any case, I think the idea behind xbox live arcade etc...is great and I see that becoming a much more vital part for console business in the future.

I do think xbox 720 will have an optical drive tho :)

 I hear you brother. Anyways, I thought MS was about choice for consumers?  They just want to lead the way for their software sales.  I reckon there will always be a physical format as the lead mediuim rather that Downloading.  

Steam is a prime example of a working digital distribution system for games. If devs use game engines for cut scenes instead of FMV then the size of games comes down a lot. Steam is slightly different though, in that most games(poss all, IDK) use the same engine, so you dont have to keep downloading it.