Microsoft announced today that the next 360 dashboard update will add support for 1080p output. I assume this is just for HD-DVD playback. Sony then rebuttaled by saying that support won't be native (I don't know how they would know that if that is true) and that at least the PS3 still has 50GB game disks.
I was a little surprised they actually did a rebuttal, but everybody knows that all developers will use the extra room for is FMV.
Additional: I should have mentioned that it is eastern developers that will fillup the game disks with FMV. It has never been fashionable in western games to have gameplay broken up between long RPG segments and long FMV sequences. There have been a few western games that have tried to do the whole interactive movies thing that doesn't work. But Eastern gamers look on FMV sequences as a reward for their long hours of killings hundreds of whatevers so such a large disk capacity will only suite eastern developers, and not in a way that breads innovation or originality.