Lastly, the download only system would help Microsft solve the issue of what optical format the 720 will use once it hits the market.
I'm pretty sure they will use Bluray. Also, while I'm sure there will be different xbox Skus available one without an optical drive is unlikely. Look at the PSP Go for an example of how well that idea pans out.
And yet digital downloading still persists. Look at all the online services that are available for all the major consoles and smartphones. The era of digital downloading is on the horizon, it is only a matter of time.
I am curious to know what the energy requirements for maintainign a optical disc drive inside a console versus purely chip based storage. How much heat is created for each system? Microsoft is going to avoid another RROD situation like the plauge, so I assume that will adopt whatever measures neccessary to keep their system alive.
Also, Microsoft might abandon HDDs in favor external HDD support. The system lacking a disc slot could have added flash memory as well.
@ Ian Sane
Correct me I am wrong, but hasn't Sony been offering their retail games on the PSN for a while? I remember reading that Infamous 2 was available near the launch of its retail counterpart. All Microsft would have to do is make both versions of their games available at retail luanch.