Fantastic post, can't believe no one's commented yet (though it is a little long :-p).
I pretty much agree with all you've said except maybe the second to last paragraph since I can't forsee that happening for all games - mainly because declining sales with each new piece of content may be less economically beneficial than charging a higher price and 'locking in' a user for all the content. I'm not 100% certain on that, it's just another possibility.
But yeah, I think you're right on with the the rest; not being able to re-sell games or swap with friends etc. Some people compare it to music but I disagree with that comparison because whereas with music you can store it on mutiple mp3 players, hard-drives etc (so you'll always have a back-up if there is a fault) with games its on one drive and one system so you can't swap (unlike music) or create multiple copies for safety. Also downloadable music is relatively cheap compared to (full e.g xbox games on demand type) games and I think that for something relatively expensive, people still want a physical copy as proof of purchase or ownership. Also I like displaying my collection on my shelf - at least for most of my games.
In addition, retail shops, however bad or unpleasent for the knowledgable gamer, are a huge advertising space for sony, microsoft etc. Imagine if microsoft released all xbox games online from day 1 of the 360 - loads of sales would have been lost since since you would have to actually own an xbox first before being able to know what games are on it! At least with retail a 'casual' consumer can go in without owning the console or visiting game websites to find out what games are available.
I think the right way to go is not 100% digital distribution but a combination, releasing games in retail and online. Like how it is now : )
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