There's no way Microsoft will install a Blu-ray drive into the Xbox 720, and to be quite honest, I don't think there's any reason for it to do so. The reasons are simple. First, Microsoft doesn't want to pay a competitor--Sony, the key backer behind the Blu-ray Disc Association--to use its format. Second, and perhaps most important, Microsoft realizes that Blu-ray isn't an ideal format, given the fact Blu-ray's chance of success is very much in doubt.
The single benefit Blu-ray provides to developers is its capacity. But once another generation rolls around, doesn't it stand to reason that producing DVDs will be even less expensive and that it may yield a more cost-effective approach than using Blu-ray anyway?
Beyond cost, what's so bad with DVD? The games look perfectly fine on the format, most developers haven't had too much trouble developing for DVDs, and even fewer have spent time complaining that it's not as capable as Blu-ray. In fact, I've heard more gripes from developers about Blu-ray than DVD lately.
But we also can't forget that gaming is moving in an entirely different. Over the next few generations, the need for media like DVD or Blu-ray will diminish and games will be purchased over the Web and downloaded to a hard drive on the console. It's already happening now in small amounts. But rest assured that as the industry realizes the benefit of sending games directly to you and Blu-ray loses its fight against streaming, you can bet that all this talk about formats will be just another stepping stone in the storied history of gaming.
Until that happens, though, I simply don't see any reason for Microsoft to offer Blu-ray in the Xbox 720. I see no reason to pay a competitor for the use of its format when it's cheaper to develop for another that's perfectly fine.
The future of gaming has nothing to do with Blu-ray. And although we don't know what Microsoft will include in the Xbox 720, I'm willing to bet it'll feature DVD and a strong online component where buying games through Xbox Live is made simpler.
