This new accessory will connect to the Xbox 360 console with a USB cable, enabling it to harness the power of the Xbox 360 console for the HD video outputs and digital surround sound.
http://www.xbox.com/en-US/community/news/events/e32006/articles/20060507-hddvdexplained.htm
It sounds like that would mean it outputs video through the analog component port. So MS would be hoping that the studios don't release titles with ICT set.
Or they could say downrezzed pics are still better than any DVD picture.
Or they could come out with some kind of a DVI/HDCP dongle. Of course, there were predictions by some here on the boards who were predicting some kind of HDMI or DVI cable.