You can't cache the whole disc to the hardrive thats why. I believe there is 2 or 3 gigs avalible on the hardrive for a game to cache too.The 360 caching should be easy enough to test and verify. Time loading on the configurations below. If the caching was as good as an install then why is MS promising a 30% decrease in load times with the new disc install?
360 no-HD
360 HD first play
360 HD second play