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Basically the author is suggesting that Microsoft are using the long drawn out battle between HD-DVD and Blu-ray to ensure that consumers get so fed up that they switch to electronic distribution instead of blowing money on a physical format that might not be around very long. And Microsoft just happen to be geard up for electronic distribution (XBox Live Marketplace).
The only flaw in this argument is that I suspect Sony are pretty much geared up for electronic distribution as well, so even should consumers turn to electronic downloads Sony are still in business.
Even should Blu-ray win (which is looking more and more likely - it only really needs Universal, the only Hollywood studio still supporting HD-DVD to join them) Microsoft are quite capable of popping a Blu-ray player into the next generation of XBox so it's no skin off their nose.
But if electronic distribution of movies and games takes off as big as music has, where does that leave the likes of Virgin Megastores, Blockbuster and our local indies? It's surprising that CDs have lasted as long as they have, but thinking about it I don't think my 14 year old niece has ever bought a CD in her life and she's really into music (via her i-pod).
Interesting times.
All I have said is that given what they actually did (ie models they released + HD-DVD support), I do not believe it was always Microsoft's intention to favour digital distribution over the physical HD formats as the article tries to make out. Its quite possible that is now their focus, yes. Has always been their focus? Dont believe it.
sorry, couldnt resist. :P