Microsoft has never been much a fan of Blu-ray.  In May 2007, firmly aboard the HD DVD bandwagon, a Microsoft spokesperson wrote:

We firmly stand behind the HD DVD format as the best choice for consumers. Current reports indicating that Microsoft has a back-up plan, which includes Blu-ray support are incorrect. We’re fully committed to HD DVD and have absolutely no plans to support other optical formats.

Today HD DVD has waned and died.  Blu-ray has proven a mild success, slowly supplanting traditional DVDs at retail locations and movie rental businesses.  And Microsoft is still no more supportive of the format.

Microsoft UK Xbox chief, Stephen McGill, in an interview with the site Xbox360Achievements remarked, "Actually Blu-ray is going to be passed by as a format."

Mr. McGill apparently sides with Apple, Inc. -- another critic of Blu-ray.  He says that digital downloads (such as those from the Xbox Live service) will replace physical media such as CDs, DVDs, and Blu-ray discs, rendering them obsolete.

There are some legitimate advantages to consumers with this approach.  Digital downloads can be quickly obtained from home via online purchases and potentially can be easier to reinstall when you switch systems, depending on the seller's licensing agreements.

Businesses benefit because the cost of serving to provide digital distribution is much less than the costs to press millions of discs on traditional physical media.  However, businesses also benefit from something that's a downside to consumers -- digital downloads effectively prevent easy resale, which would essentially destroy the used games/movies/music market if the format is widely adopted.

Another downside to consumers is that they lose all the physical "goodies" that come with the average DVD or CD -- such as booklets, art, and other perks.  Also problematic is the growing amount of data-capped connections.  If such a connection is used as your primary internet service, downloading content could become prohibitively expensive, as a single high definition movie package could put your well over your limit.

Thus Blu-ray is unlikely to go anywhere quite yet, despite Microsoft's predictions of doom.  And Microsoft seems equally unlikely to embrace the format it has long fought against.