Microsoft is setting itself up for its next console. I'm sure they wouldn't want to put a blu-ray drive into their new console, so the only way to deal with the lack of space would be to go fully dd (digital distribution) Of course dd is a bit too pre-emptive much in the way that blu-ray was and won't catch on in the next 3 years when 720 will likely come out. I keep hearing digital distribution is the future but its no where near that. Take a walk in BestBuy and notice all the rows and rows of music Cds. Haven't those been completely replaced by Itunes? Of course not-harddrives fail and unless you purchase Itunes plus songs you still have to deal with DRM issues. And y'know nobody buys movie collector sets of anything I mean its not like there's collectors sets of music cds and video games now too... Oh wait. 

Not everyone has a T-1 line, not everyone has 100 terabyte harddrives and not everyone lives in the Hamptons

sorry Microsoft.

not to mention movies and hte deal with Netflix...games are coming down the line, but there has to be protections put into place to avoid cyber thieves...let's see...download onto one HDD...then another...and another.

Hmmmm, I think this thread is a little narrow on the subjective side. Heres why.

M$ as of the fall update will have over 9,000 more films available for download than Sony, both in HD and SD.

M$ have numerous TV series for download including Battlestar Galactica, Cribs and CSI.

There are already more than 10 last gen full games available for download on Live.

And there are well over 50 XBLA games available for the 360 now.

Demos 9/10 come to Live first even for multiplat.

M$ will be ready to do this gen games when they feel the time is right. But to say Sony is leading the way is your opinion, but I do not see how you conclude that witht the evidence on hand.

 QFT.

And also, you need Gamesjops to sell those new consoles. And if you would be aiming for digital distribution as your biggest software seller, then gameshops will simly boycot your console. Because you are killing their business.

Sony played it smart, not telling retailers about its big Digital Distrubtion plans at launch, getting up to speed, and now offering loads of games through PSN and Blu-Ray. If retailers new about this from the start, they would have put the console all the way in the back of their stores at launch.

So yes, MS has got one more problem to conquer, when launching the 360 successor. They can't say "you'll be able to buy loads of games online" at launch, or retail will kick them in the nuts.

I bought Braid a few hours ago. I did not receive a disc. Kinda sounds like digital distribution to me.

Digital Distribution future equals pissed off mega retailers. Haha companies like Wal Mart, Target, Best Buy, and especially Gamestop won't stand for that kind of future. They make way too much money off the entertainment business, especially video games. They probably hate it enough already that games can get released that way but are fortunate none of the big releases go that way.

But unless they can get a cut of it... it won't happen because they will keep pushing the publishers to have all the games released through them.

MS has been distributing digitally since a long time. Maps, arcade, etc. existed during the original xbox. Semi-games like warhawk and gt prologue aren't included because it waste hdd space, and it's to keep a good relation retail. If they start ditching retailers, retailers will give them less space for less exposure which means less sales

the way things are shaping up developers will have more freedom, publishers will be replaced with advertisers, and consoles will be sold exclusively online and at electronic stores. i like it.

and ms has under delivered their big promise of digital distribution, but they also did the same thing with user generated content. sony delivered on both. dont get me wrong, all three have under delivered in areas where others came out and surprised people.

M$ already is using DD with XBLA and the netflix thing is soon to come out etc. M$ was talking about DD as a method to distribute data in general, not just games on consoles. Just look how much DL content there is for PC:s. Music, movies, games, books, newspapers.
Without a doubt, DD will be the primary form of distribution in ten years, but the question is, that which companies will get the best out of it. My bet would be Google as number one, while M$ could come as second if no one comes out from the left field and surprise everyone.