Gosh, I'd be surprised at that. Of the games I own I think only FFX has video sequences. What about these examples. How much of these are video and audio?
Condemned: 3.9 GB
Madden 06 NFL: 3.3 GB
Dead or Alive 4: 5 GB
NBA 06: 4.5 GB
I haven't found any examples of individual XB game sizes. With the articles given figure of the average game size being 3.2 GB in 2005, how many 2005 games have lots of video?
Of the PS2 games I have and could compare, that'd be useless as XB games are often smaller in file sizes. This idea really needs some XB game sizes to be posted with breakdowns to get an idea of the variation.
One factor is that compression WILL be better, it doesn't mean they have to lower the quality on the JPG's like you suggest, it means they can use compression where it otherwise might not have been feasible. It's just one factor that will help.
The reason I suggedsted JPEG was because that gets high compression. If you go with a lossless compression scheme on images, file size reduction are much inferior. That's because JPEG throws away some information, so of course it's going to get smaller sizes. If JPEG is used in XB games (I've no idea what compression techs they use) than going to a lossless format is definitely going to increase filesizes (in most photo-like textures. For simple geometry type images PNG knocks JPEGs socks off!).
So are there better lossy formats than JPEG that can compress smaller without the artefacts? I dug up some info on the little used JPEG2000 which is one alternative I know, to see how it compared. I found a reference that suggested JPEG2000 was about 20% more efficient than standard JPEG, and a page that had some comparison pics. Here it is...
http://kt.ijs.si/aleks/jpeg/artifacts.htm
This format still shows obvious artefacting at higher compression ratios. Relative to JPEG, you could compress less for the same filesize and get better quality, or compress the same image t the same quality and get an extra 20% reuction in filesize, but you aren't going to get a substantial reduction in filesize without going into fierce and lossy compression rates.
Images is only one area. I think it'll be quite a large area of data as now we're looking at lots of textures per object. There'll be not just diffuse (colour) maps and maybe a reflection map or two, but normal maps, parallax maps, dirt maps, specular maps and so forth. For each model in a next-gen scene there'll be more texture than current-gen, and probably at higher resolutions too. Dirt maps could likely be procedurally generated so that's one area data storage requirements could be cut back. But the rest surely needs a good 4x the space of XB games at least?
Many other data types can't be compressed with lossy formats, like geometry and scripts and level maps (though the latter two are normally negligable sized after compression) and you're very limited with the amount of improvement you can get. Looking at that chart I found earlier, even if new algorithms were developed that compressed smaller and faster than the best available now, it'll only achieve perhaps a 20% improvement on what's possible now.
The big consumers of space AFAIK are geometry, imagery, video and audio. The only way to get the latter three smaller than they currently are is to compress more strongly with lossy formats. Now if the latter two are substantial components, and they won't get any larger next gen (or can be axed in the case of video and replaced with in-game cut-scenes) then the data size increase will be limited to a fraction of the overall current-gen size. If XB games are on average 3.2 GB, and 2 GB of that is audio and video, a next-gen version of the same game would only have an increase in 1.2 GB of data (minus executables). That could accommodate a four-fold increase in size without breaking the disc capacity. Ican see how that'd work, though I find it hard to believe most of the content is audio and video because of the games I've seen, only a few have video and the audio isn't massive. A CD's worth of audio compresses down to like 60 MBs at good quality. Uncompressed it'll take up 700 MBs. RPGs with lots of speech will have a large audio element, but for most games I can't see audio being the primary component of the data. And as I see, I don't see many videos. A few artefact heavy minutes of video at most in most places it's present (from my experience).
We really need some good breakdowns of current XB content component sizes!