We have now been told by Insomniac Games that the use of streaming from the HDD has allowed them to almost double their texture budget.
I think that it's becoming obvious that streaming textures from the HDD is CRUCIAL.
You're completely misinterpreting the presentation.
Whether you have textures on the HDD or the optical disk doesn't matter. You need to have all necessary textures in the RAM at the same time to render a scene because a hard drive isn't fast enough for single frame latencies.
That means to use HDD's speed advantage over BR, you have to either install all the game's texture data to the HDD in an initial install step or you have to copy all of a level's texture data to the hardrive before each level, thus resulting in
longer loading times than streaming directly from disk.
What Insomniac did was first stream the low res textures from BR to RAM, so the level can start, then start streaming the high res textures to the HDD (again it's from BR) in the background. You also have the currently needed high res textures going from the HDD to the streaming buffer in the RAM when they appear, but these are limited by the BR transfer, so you'll still have pop-in identical to a HDD-less console.
A minute into the level when this is done you won't need to load any textures from BR for the level, but the advantages of this are small. The streaming buffer has the high res maps of the areas around you. As you move around, the furthest high-res textures are removed and those for the distant region in the direction of travel are loaded in. Whether these are loaded by BR or HDD doesn't really matter (see below for more).
Nowhere does Insomniac say that the HDD allowed them to double their textures. Streaming is what did that, and you can stream directly from BR if you want to.
Also, I think it's now obvious that some of the developers that complain about the PS3 having less available RAM than the 360 don't want to work on a texture streaming system.
Texture streaming does nothing to address the amount of textures that you can have access to for any given frame, which is what determines the maximum quality of the textures that you will see on the screen.
The difference between BR/DVD streaming and HDD streaming occurs when moving very rapidly, i.e. the appearance of new data on the horizon due to player movement is faster than the BR/DVD bandwidth available.
So even with the best streaming, more RAM for the streaming buffer will improve image quality.