That guy's a manager, he cannot tell the difference between CD and DVD, much less XBox and XBox Next. MS cannot remove the HD from their current device, Halo needs it.
MC: Piracy. You can easily add a larger HD to the box and put warez on it. If they put a large solid-state memory inside, that would not be a problem, but that stuff's not exactly cheap. Smaller HDs aren't cheaper, either. Those are under the minimum size manufactured, thus needing to be constructed specifically for Nintendo. Even if these things cost only 50 a pop that's still a considerable price for a single component.
Personally I'd expect Nintendo to use those 128MBit cards they use for the DS, that's enough for most games. It's not like we're going to see X2 for consoles (22MB saves), anyway.