Joystiq reports that the special disc does in fact have to remain in the PS3 for the streaming service to work. The reason is that Netflix doesn't have a XMB solution in place at the moment and won't have one until sometime in 2010.

Netflix reports that the application was developed with help from the Sony team. The reason Netflix went with a disc based solution rather than waiting for integrated capability was the issue of timing. Netflix told Joystiq, "Netflix members and PS3 owners have really wanted a way to instantly watch movies and TV episodes streamed from Netflix via the PS3 system. The instant streaming disc represented the fastest and easiest way to let them do this."

Netflix reports that late next year next year, “We expect to have an embedded solution available for PS3s via a system software update slated for release through the PlayStation Network."

With the exclusive claims that Microsoft was making many are wondering if the disc-based solution was a way to get around the "exclusive streaming" claims Microsoft touted. Netflix says that the agreement with Sony does not conflict with its agreements with Microsoft. That "exclusive streaming" claim is likely the reason PS3 owners won’t see an embedded solution from Netflix until late in 2010.