I just heard this on 1 up some of you might know this.
"Microsoft has made several mentions about Xbox 360 eventually featuring a next-generation disc format, but the main question was always how they would handle consumers who picked up an Xbox 360 with only a DVD drive. A recent interview with Japanese chief of Xbox operations Yoshihiro Maruyama with Famitsu Xbox revealed more.
Instead of allowing developers to move games onto the next-generation format (likely to be HD-DVD considering Microsoft's recent alliance with Toshiba), only movies will be viewable. That way, you don't alienate the primary reason people are picking up the machine, yet still avoiding falling behind the media curve when stalked up against PlayStation 3 and its Blu-ray drive.
Of course, that still means that anyone who purchases an Xbox 360 before the upgrade become standard - which could be anything from 1 to 2 years from now - will be mostly out of luck, but there's still plenty about Microsoft's plans for moving onto HD-DVD for another next-generation disc format that we don't know".
This wont be beneficial for Microsoft once PS3 starts bringing out really quality games around late 2007.