This is the only logical step for Movies to make. I don't really understand the Blu Ray Vs. HD-DVD thing when it seems like the market is really going toward digital distribution.  Soon there will be DVR type boxes which you'll store all your movies on like an I-Pod and there will be no degredation of sound or video.

im all for it, believe me. but digital distribution at that level is way off. ive been trying to figure out the best method to do it for a bit now and have held off on purchases to see what apples got up its sleeve and what comes on its heels.  even so, with the supposed 80 gig HD for the 360 you arent storing that much media. The bottom line is its easy to test the waters and be successful in an way, but we are at least 1 generation off.  Boy do i wish though. Id love to throw a 2 tb media center behind a wall and digital distrubute lossless audio and video everywhere.

that all said, i love that ms is doing it. but just like netflix in order to be truly successful they must have a deep catalogue. Its the long tail that makes it a true success.