Mainstream consumers want recordable DVD's at this point...not an all new HD format (let alone two competing formats). Initially BRD (now BR) and AOD (now HD-DVD) were going to focus on not only delivering higher def. content but ALSO give consumers the ability to have a recordable format. Now that's sorta in limbo 'cos of cost issues and the fact that there's two formats competing...all the while DVD recorders will go down in price and become more attractive to mainstream consumers. To me HD-DVD & BR are becoming more and more stop-gap regardless of BR being in PS3!
Yes HD-DVD & BR offer more than DVD: higher def., higher capacity, faster speeds...all good for gaming as well. HOWEVER, it comes at a price. I used to think that Xenon not having a next generation disc format would kill MS's chances next generation, but that was the ever-hopeful Nintendo fanboy inside of me. Looking at it from a business sense AND a realistic sense, I think it might've been wise for MS to stick with DVD. Why? The format and the drives that play them are standerd and CHEAP, that money saved can be spent on things more benificial to Xenon. Also MS stays out of the whole DVD vs HD-DVD vs BR "war" which saves them and their consumers the headaches of choosing the wrong format/platform due to doubt.
Xenon will have the MS name to keep the momentum going and it'll have a solid headstart giving the system a nice userbase to work with so publishers won't ignore it *just* 'cos it uses DVD as oppossed to a next generation format. Most likely PS3 games at launch will be on DVD as well so maybe BR won't even be a factor until later into next generation, but by then I'm sure people will already be talking about the next next generation of gaming as well as the next next generation format.
In all liklihood, the next Nintendo system could be DVD based (dual layered, mini, double sided and/or encased DVD, whatever) even so it's not like publishers are going to ditch MS *and* Nintendo completly just 'cos PS3 has BR. Maybe if BR was hitting a stride in being more than a stop-gap NOW and be a selling point for PS3 (like DVD was for PS2) than *maybe* it would be a factor, but that isn't the case.