This whole "doomed platform over a video format" theory is getting pretty played out. HD techno-junkies will just end up buying a BR and an HD-DVD player to play the movies they want to see. If they bought a giant HDTV, then 2 players are hardly a big decision. It's simply what they do. So ultimately, neither format will make much strides because that demographic (the early adopter) is small. The numbers are not there for a "format war" to even begin to take place (witness SACD vs. DVD-A).
Meanwhile, the rest of us (the big demographic that matters) will just keep using DVD's to watch movies. Reasonable quality, obiquitous compatibility (the DVD you buy will surely work in the player you already have), commodity pricing- those things will ensure DVD will stick around a bit longer. Presumably, PS3 will play BR, but retain DVD player capability for PS2 backwards compatibility. So things will be much like they have always been wrt watching movies on Sony's game console, except there will be that "extra-special" HD movie capability should they ever bother buying a BR movie disc.
XB2 will have HD-DVD, presumably, and probably not for free, just as DVD was not for XB. For what few movie discs come out in HD-DVD, HD viewing on an XB2 will remain a niche feature- not enough to help or hurt it as a game console. So that will make less peripheral incentives for the casual buyer to pick up an XB2- no DVD or HD-DVD playback out of the box. It will have to make or break it on its limited game library.
When all the dust has settled, DVD will still be alive and kicking. Perhaps, it will end up outliving both XB2 and PS3. By that time, movies on HD-DVD and BR will be fading, withered pipedreams, ultimately inconsequential in the face of a new format that takes the best of both worlds and is cheaper.
Then there will be a DVD successor.
So by PCE's strained logic, PS3 will be considered the go-to in continuing to play your DVD library, PS3 games, PS2 games, and a few specialty BR movies (which will develop that elitist, collector-edition appeal just by virtue of their rarity). XB2, ironically, will then become that "poor man's HD-DVD player". It'll play XB2 games, no DVD movies, and for an extra charge, HD-DVD playback. It will be the go-to for those too cheap to dig-in with a dedicated, full-featured HD-DVD player to complement their fancy HDTV, for a limited (but still bigger than BR selection) movie selection under a format which will ultimately flounder before the XB2 lifespan is through.
So we have XB2 falling into "niche" with the games, "niche" with the movies, and on top of all that, don't expect x86 developers to make such a smooth transition to making PPC games. I'm not saying they won't be able to make that transition, but they certainly won't be leveraging their most refined coding skills to be making these games like the days of x86 game developing... Where XB suffered from growing pains as a platform, XB2 will be cursed once again with a different set of growing pains by their most respected x86 developers having to come to grips with a new PPC environment (not to mention getting 3 cores to play nicely when they were born and bred in a single CPU environment). So this certainly won't be a cakewalk for MS (even for a 2nd outing), once you come to realize the choice of video format is a red herring altogether.
Just my 8 bits.