I think the Revolution needs to have movie playback, regardless of whether or not it makes the system more expensive.
As someone else on this topic already stated, if a general consumer is looking at two systems, and the price difference is let's say $100, they will pick the system with movie playback because it does something else.
Even though I have a DVD player in my computer, and one at home on the main TV, when I'm home, I use my PS2 as a DVD player, because it's right there in my room. It's one added feature that makes me like the system that much more. Did I buy it just for the DVD playback? No. But it certainly makes the purchase more worthwhile for me, because it does something that my Gamecube can't.
Anyway, to conclude my rant, movie playback is a must for the Revolution. Even if Blu-ray or HD-DVD aren't even being used yet in 2006, the ability to play movies on them must be built into the system. It'll make it just that much better.