Against earlier reports Microsoft said yesterday that they are not talking to Sony about getting Blu-ray drives for the Xbox 360.

Reuters got the word from Aaron Greenberg, group product manager for Xbox 360 that Microsoft is not currently in talks with Sony or the Blu-ray Association to integrate Blu-ray into the Xbox experience.
Microsoft is apparently betting entirely on digital distribution of media content. I think they will put themselves in a corner, only a handful people really have the bandwidth to get 1080p HD video over the net (you know who you are, you lucky Verizon FiOS customers).

The silver discs will still be with us for a long time. Blu-ray player prices are actually going up right now because there is no competition. This will drive even more customers to the Sony PS3 as it is still the best deal for a Blu-ray player - affordable and already future proof.
Via Reuters.