Its very simply.

1: Microsoft isn't actually in the business of creating films. sony is. Thus its a lot easier for them to support it.

2: Microsoft doesn't have much ownership in HD-DVD so they didn't really care, they supported it more to disrupt sony then to bolster their businesses directly.

3: Since Microsoft don't make films and all the major studios dropped support, whose going to create content for the platform?

Main reason? Microsoft just don't care

 Your post is irelevant because the PS3 would murder the XBOX 360 had they released together.

HD DVD died due to the perception that a unified format would equal bigger install base which would equal higher profits.  As such, when it was apparent that Blu Ray would have a higher install base, everyone jumped ship. 

 UMD is still alive because the PSP sells fairly well and people still buy some (albeit few) movies.  It's kind of like the GBA movies.  I don't really consider UMD a format but if you want a movie to go on the road and have a PSP you may choose to pick one up. 

It's because UMD is the disc format for the PSP, and outside of it's uses as storage media for PSP games, it's a failed format as well. It's on life support and (I'm guessing) will be dropped when PSP2 comes out.

Also, UMD has no direct competitor in terms of portable media-viewing. There are avi and media files, but they are easily pirated (so not a viable option for companies at the time) and portable DVD players are impractical because of their size. Basically it died because MP3 players provided portable avi viewing at that point, so UMD became redundant from a consumer perspective (and carrying around all those UMD's is also impractical) so that's why they didn't jump onto it. So while it had no commercial competition as a format (avi = impractical for business at the time), it was a failed format because there was a superior alternative in almost every (in every important) way.

I also agree with FaRmLaNd's post.

Online movies that cater to the PSP demographic are being released, nowadays.

Microsoft's real intention was to create a format war long enough for downloadable content to become the standard. Blu-Ray movies have yet to see a big spike in adoption and with the economy quickly going into the dumps people are less likely to spend money on big ticket items such as a blu-ray player. Downloads are the way of the future since fiber optics are probably going to replace the current infrastructure in the near future. Then it will be just like people said about music..that downloading music will never succeed. We all see how that turned out. Downloading things means it is easier for small developers to release their things and cheaper to release as well since no physical media is involved. There could be massive server farms where people make an account, pay for a movie, the movie is flagged as bought, and you can stream whenever you like.

 I agree with your post, except, I'm not to sure if MS's grand plan was for downloadable content to succeed. I mean, what would they have done if HD-DVD won instead? To me it seems like MS switched to downloadable media for the same reason it switched to HD-DVD in the first place, like you said, as a response to sony and blu-ray.  I guess the standard 20gb HDD and lack of in the arcade support this, considering that 8 games worth of offline files (save file etc) and the regular 360 files left me with 14gb's as it is (when I had my 360). It looks like either quick fixes or poor foresight to me, seeing as how big files are these days (i.e HD movies are basically double their SD equivalent and then take into account many TV shows are going HD now, which would lead to HD box sets).

I know you mentioned streaming, which is a option, but I'm running 1.5mb ADSL with 25gb so I would run out pretty quickly and I would guess that the average net speed is 512k down here with <10gb downloads (partly because Australia's internet growth plan is a joke and because the average consumer doesn't know a good deal unless it smacks them in the face) so it's not yet viable everywhere (I'm pretty sure we are one of the slowest internet speed countries with broadband though).

UMD would have taken off if movies to the PSPs demographic were put out.

Sadly, they weren't.

Chick flicks, and girl movies were plastered all over the UMD market. killing it