It seems as though a Blu-ray add-on is coming to the Xbox 360 down the road, according to Steve Ballmer. He says so in an interview. Although, the way that this story reads, it doesn't actually say anything too official (even though it's titled as such).

So, I'm probably just as confused as you are.

http://xbox360.ign.com/articles/103/1037710p1.html

Interesting, wonder how much that accessory will end up costing. And while on demand is nice, I'd much rather physically own the media.

I don't see the draw to movies being downloadable, you will be limited on where you could watch the movie, couldn't resell it, pretty much some of the same downsides as with games being moved to download only.

Although it's been confirmed that this is not a Blu-ray update, the Xbox 360 is apparently getting some kind of unspecified new disc format. Some sort of preview event (where a disc will be mailed out) is happening now or will be soon, where the customers enrolled in it will receive a free copy of Halo: Reach.

http://xbox360.ign.com/articles/115/1158240p1.html