Personally im not seeing optical discs as being the means of distribution next generation. It just makes more sense to rely on:
1. Internet
2. Kiosks
3. Cartridges
So that the average cost of distribution will be lower even if individually flash costs more. The fact that it'd probably save around $30 or thereabouts in warranty repairs and physical costs per console would offset the majority of the difference in cost if every game was still physically purchased on flash cartridges. However since it is possible that physical distribution of cartidges would account for less than 2/3rds or even 1/2 of all game purchases in the next generation the cost difference is no longer as important especially as games nowadays come with DLC so the additional flexibility of flash would actually be useful.
If cartridges were reuseable, it would remove the cost of flash entirely. In other words, there could be a standard distribution flash cart size. The cart is only used to transport the game from one physical location to another when the user doesn't have access to broadband and/or doesn't want to use kiosks with their own external media.
So for example a place like Gamestop would carry these reuseable carts already preloaded with a game. When you first buy a game it costs say 60 or 70 USD to offset the price of the flash cart.
After that, each time you go there to get another game, you get a 20-30 USD credit (cost of the cart) which brings the game back inline with the DD cost of 40 USD. Basically once you've put in that initial investment the cost of games going forward would be the same as the DD cost and there is no costs being eaten up by the publishers for disposable media.
Gamestop then erases the game image on the cart and replaces it with whatever new game is coming out. Or keeps it as is if demand for that game is still big. And the cycle repeats.
Basically, there's a LOT of different methods to support a DD only distribution system while maintaining accessibility for those that can't directly download the game off broadband. And in ways that would not be dissimilar to how games are currently distributed.
If a user wants to keep their own copy of the game, just load it onto a USB external HDD. Presumably games will be activated based on online or phone ownership verification thus the distribution medium doesn't matter. Heck in a system like this a person could just download it off a torrent site but still can't play it until it is "unlocked" on his/her account or machine. And, by allowing downloads off torrents or filesharing sites, that lowers the costs to Sony/MS/whoever as they are now not paying the bandwidth.
Regards,
SB