Agreed that if digital downloads are going to take off for consoles, Microsoft and Sony both need to do a better job supporting it. I think it will be a slow transition, but it's already happening to an extent and I expect it to continue.
Too early to really say either way on future projections, the research on flash-based memory is very aggressive to the point that Moore's Law is currently being violated in doing so (Moore's Law is the idea that technology capacity doubles every 18 to 24 months, this trend has more than a half-a-century of evidence supporting it). As I said earlier though, I'm of the belief that optical drives are going away.
I also want to know where you got your statistics on a hypothetical 16x Blu-Ray being faster than a platter-based hard disk? I'm finding stats saying it'd only get up to half the data rate of a 5400 RPM hard drive, which would still be damn good for an optical drive, but still not meeting your claim. The capacity of something beyond a DVD - be it a Blu-Ray or flash memory of some kind - is going to become very necessary, however.
It's an interesting topic, certainly, and something that will be interesting to watch unfold.