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It's a very very rough extension, mainly in name only. You can buy all the Superbits you want but they're not High Definition. If you don't get HD cable then it's really pointless owning an HDTV (or if you have an XBOX) since DVDs look just as good on a really nice SDTV. That being said, a really good DVD transfer looks fantastic, and more isn't that necessary.
I know this is a few pages late, but the main reason people are currently buying HD-TVs isn't decause they want higher resolution pictures. It's because they want widescreen. At least, I think that's the reason my parents and a few of their friends have gone out and bought them. I know that's not technically the definition of HD that the industry wants spread, but its the one they put out. The two are synonymous among the public now, and my parents are perfectly happy watching non-high res content in brilliant stretched out widescreen.
I think the most interesting thing about the games industry has been the way "pure power" hasn't really ever played a role in what sells. People want games in the end. A lot of games. A huge variety, and some of them even have to be good. That's what the NES, SNES, PS, PS2, and now the DS all have had in common. It's never been about DVD playback or cartridge formats (although the cartridge format directly effected what games were released for the N64). It's just about how much and what you can play on the system. Games drive console sales and console sales drive development. I firmly believe the same will take hold in this generation, and it really looks like Sony hasn't lost any of their support, so I really doubt their market share drops any time soon. Microsoft doesn't really have a whole lot to put them over the top in that sense.