Many people seem to prefer shifting focus to the appearance of a person, instead of analyzing what he/she is saying. I don't know what a guys' supposed fatness contributes to a discussion in "Hardware Chat", but I guess it's easier to talk about that and not about the technical side of things. You'd expect better from a guys with "tech" in his name and a moderator (in a different thread).
For a developer, having one console with two hardware setups is a bad thing. It means you need more time to focus on compatibility, and have less to spend on engine features and game logic. Not being able to trust on a HDD for gamesaves and downloadable content isn't that big of an issue offcourse: the SDK mostly takes care of that. The danger lies in different hardware configurations becoming "acceptable behaviour" for Nintendo, Sony and MS, so that in a generation or two console development will become just like PC development, where updates to the executable are sometimes needed to even play the game in single-player mode.
As you might have guessed, updating the executable of a game on DVD-ROM is a bit hard.
With MS choice to keep using the old DVD media, space becomes an issue. Using 9 GB DVD's is more expensive then 4.3 GB ones, and if you don't have a scratch disc to extract your compressed high-detail textures and 5.1 sound streams on... you can figure that one out. Having "freedom" in games means having your resources quickly available.
If it's really true that there will be "HDD-only" games then that will suck for developers (dilemma of broader market vs. better graphics/gameplay/whatever), for end-users (customer pays, confusion) and MS will laugh.
