A news report is spreading that Toshiba quit the talks about a unified next generation High definition DVD format with Sony.

Forbes carries a more balanced report about the Blu-Ray versus HD-DVD situation.

Basically Sony and Toshiba will go ahead and release products for their new DVD formats, as they did not make any progress in the format negotiations, which was already the status in May.
Sony is going anyway ahead with the PS3 featuring Blu-Ray. Toshiba apparently plans to release HD-DVD players end of this year. Who will suffer from this situation the most will be the Early Adopters. We need to take a chance on which format will make it.
Available content will decide which format will prevail at the end. Right now I give Sony a better chance as they have the PS3 to pull the format into the market. The Sony PSP UMDs already show how this works.