Well put, good points. What would be interesting is with cloud computing like OnLive wants to do, that gaming might become like an "on demand" service. You won't own the game, but can rent them, play them, and be done with them. If you want to play again, you order them on the "on demand" service, which in effect is like a digital rental service no different than Pay per View.

There's a serious misunderstanding of copyright in this post...

There is nothing wrong with renting games as long as Devs and publishers get their cut.. and by their cut, i mean a resonable 5-7x price of the game, since a rental company will make a lot more than that from a title. Its a win win i guess- this way companies make more money, gamers continue rentals and its all happy and legal.

One can be cute and say, "Well it is legal because that is how the courts rules". Yes, it would be cute, but sometimes that is all you have on. Depending on where you are in the world, you get different rulings (Some countries forbid rental and resell of used games) So, I feel it would be good to rephrase this question as:
Why SHOULD renting games be legal? PC software isn't legal to rent (piracy concerns won them they day), why should console games be?

Well, I will list several factors in this and then see where the chips fall:
1. Libraries let people BORROW books for free. Should this be legal? Some libraries even lend out movies to for free. I believe some even do it with videogames. Should people who own a game, have a right to let others use it as they decide?
2. If one has a right to a license for intellectual properties to be able to let others use what they own, then is one permitted to make a business of letting others access your license for use. In other words, can you RENT your games out to other people, so you can make a living and buy more games?
3. If you own a game, should you have the right to be able to sell your game away? Is someone able to make a business out of doing such?
4. Licenses in America are normally set up as a per user/machine use on the software side. It is intended to restrict it so you sell more. So, with this as a case, my take is that if you sell your game off, you no longer can use it. And when it comes to game rental, only so many people can have access to a game at a time. The number of users is locked in to a certain number, so it doesn't go all over. Observe how Netflix works in regards to this. You can't stream everything.
5. The rental business guarantees a certain number of sales. A key to games is that you PLAY them. A game considered worth owning should provide great game experiences for people, and very likely replay value. Before videogames, games were considered something you played with other people, and said to have replay value. You would keep playing chess. The likes of Scrabble and Monopoly would be the same. If a game had this replay value, then it was considered a good game.
6. Games now are disk based. They have wear and tear on them, and who knows what else you rent now. The game may or may not work. There are reasons to want to buy new instead of used, and play them.
7. When you are able to trade in games, you then have more money to be able to get new games. So your old game purchases fund the acquisition of new games.
8. Arcades used to act like movie theaters and be proving grounds for the home market. These have gone away. We now have rental markets that have replace them, to some extent.
9. Should people have a right to try before they buy? If so, in what context should they be allowed to do so?
10. The industry has apparently adjusted to the changes that have happened, going to downloadable content, and deluxe editions, and the use of preorders.

These are some of the angles. I will let others mention other angles on this. And I will let others decide and debate what I wrote here.

Copyright law was made to benefit users not creators. Renting benefit's users.

Nope, copyright is there to protect the creator and his or her work.

Not according to the Suppreme court:

"The sole interest of the United States and the primary object in conferring the [copyright] monopoly lie in the general benefits derived by the public from the labors of authors."

They are wrong.

It should be: "The sole interest of the United States and the primary object in conferring the [copyright] monopoly should benefit the labors of authors."

Or something to that extent.

Quoting Malstrom:

"Used games are a type of ‘customer protection’ that aids the customer in getting some credit back should the customer finds himself stuck with a game he doesn’t want to keep.

It is sheer arrogance to believe that this industry has any right to money made from used goods. You got your money when the product is sold. Imagine trying to sell a used TV and hear the TV company moan and cry that someone is buying a used TV instead of a new one. It doesn’t happen and if it did happen, everyone would look at the TV company in astonishment. If I sell the chair I am sitting in now, the chair company doesn’t believe it is ENTITLED to that money. It got its money when I originally bought the chair."

He's referring to the sale of used games, but it certainly applies for renting games as well.

Did they? If they sold 5 copies of the game to Blockbuster, who in turn had 505 people rent the game, then did the developer/publisher lose 500 sales? I tend to think that the publisher would insist on a cut of the rental sale, like $2 out of every $5 or something. In essence, if it did turn away 500 sales at $30/copy profit, thats15k lost in sales. Even if they got $2 per rental, they'd make $1,000 out of a possible 15k. From the industry side, its a lose/lose situation, from the gamer side, its a win/win.

Personally, I think rental prices aren't worth it anymore, especially with Blockbuster charging $8-$9 per game rental. Gamefly looks like a decent option tho, since you can play a game for a few days and get another for the same $15.  For me personally, this is a better option, as I like to rent games to see if they're worth purchasing. i dont have the time to committ to beating a game in a week or 2 anymore, so for me its like a demo/preview service.

As you see, Im a little conflicted on the issue, as Im a developer and a gamer.