Xbox 2/Xbox 360 won't use either Blu-ray or HD DVD?

People (you know who you are) have been gossiping for a while now that something like this was in the cards, but now the Inq reports that there is a very good chance that Microsoft isn't going to dance with either
Blu-ray or
HD DVD and instead is going to put a regular DVD drive in the Xbox 2/Xbox 360 in order to keep costs down (and get the console out on time). You can certainly make the argument that hardly any games would take full advantage of the 25 or 50GB of space you'd get on a Blu-ray disc, but not shipping with a next-gen drive is only going to make it that much easier for Sony to erase the next Xbox's headstart when they launch the PlayStation 3 (which will 100% guaranteed have a Blu-ray drive) next year.