I don't know that Blu-Ray or 1080p will be big factors in 2006 or 2007.
But by 2009 or 2010, they could be. Most of the sales could still be to DVDs and 1080i sets. However, you figure they will have some kind of volume.
Nobody is discounting HDTV when it comes to the X360. But they may miss an opportunity by sticking with DVD and they may miss an opportunity by sticking with 720p/1080i.
The thing is, if you read enthusiast AV sites, people bought digital TVs or HDTVs for enhanced DVD playback -- widescreen and progressive playback, 3:2 pulldown, etc.
And I'm not convinced that Blu-Ray discs won't have any benefits for SDTV. Higher bitrates, better codecs for one. The studios also apparently are big on interactive features (hence the BD-J vs. iHD debate). So there will be some ancillary content as well. Of course if they price Blu-Ray at a big premium to DVD or HD-DVD, then people with SDTVs would be discouraged.
Also, Blu-Ray and HD-DVD should both be better sources than anything else for existing HDTVs out there, which number into at least the mid-teens of millions, with annual sales growth in the triple digits or at least high double-digits.
Those of you who are sanguine about the X360's market share prospects in the next 5 years, you can bet that MS would love to have the projected sales growth curves of HDTVs. You talk about 100 million or more consoles sold in the next 5 years, there's a pretty good chance you'll get that kind of volumes for HDTVs.
Still think HDTVs are going to be too small to matter?