I think the next XBox will have to include a proprietary flash-card format (yes, a cartridge) much like the Sony NGP will have and many Nintendo consoles have always had.   This is because the DVD format is already getting very tight for current-gen games and Microsoft would never license the Blu-Ray format from the Sony-led consortium.  The DVD player will still be in the next XBox for compatibility purposes and maybe even for new games, but publishers will have the option of this card format for releasing games.  An 8 GB flash card can be had for $7retail already and I think the 16 GB are close to dropping into that range soon as well. 
 
This is my speculation, at least.  We'll see.