I really think they mispoke on Dreamcast games. I don't care how fast the internet is getting I am not downloading a 1Gig game to play.
There are several arcade games that Microsoft COULD get, however most of those arcade games were also released on the NES and SNES systems so I could see the companies supporting both. Obviously, the arcade games that used franchises like the Turtles or Simpsons will be harder to get.
All in all, I really doubt this thing will hurt Nintendo, and if Sega does in fact bed Microsoft instead of Nintendo, they are being foolish. Revolution will attract more retro gamers that would be more likely to buy their games.
As for Sony doing this with their library....like I said with the DS games. I am not willing to wait for a CD length game to be downloaded to play.