The news that HD-DVD lost the battle of the next-gen media should not have come as a surprise. Sony saturated the market with Blu-Ray players (PS3's) and I can only hope that Sony's loss leader was worth it for them in the long term.
Effect on the Xbox-360 is not so subtle.. Suddenly its a DVD based games console that is now dimished but the news that Bly-Ray is king. Of course Microsoft could release a Blu-Ray add-on or even create there own comparible format. Microsoft has taken this heavy handed approach with software before now but I doubt that it will try to domminate the market just yet. My personal few is that Microsoft will simply start work on a new version of the Xbox which improved specs and try to topple the PS3 the Xmas after next.
PS3 is now set to be "the" box under the TV and the Media center of media centers.. Just so long as Sony deliver on their promises. Something they seem to have a hard time doing.
So whilst the battle between HD-DVD and Blu-Ray is won the war still rages on..