The average consumer is needed to make the format ever take off, otherwise it's just limping around waiting for someone to perfect and execute a successful streaming implementation for the masses.
All this spells to me that streaming is not only the future, but likely coming sooner rather than later.
What Microsoft needs to do is remarket the 360 as a media device instead of a console, make a basic streaming UI with access to the gamer portions separate, and sell it as "the future to HD, streaming."
Your updates won't be a problem on that device, because everyone will know it's a streaming device to begin with.

I never bought into Bluray, shiny discs belong in the 90s with the DVD and laserdisc. That said, HDDVD would've been the better format for the industry (rather than BR), it has a more marketable name for consumers, a final spec and region free is the way to go for those of us that travel.
Now that the consumer lost that battle, I hope MS can create a device that's basically Hulu + more in a box. It would work, and bandwidth and compression methods will only improve over time to go beyond 720P streaming, and the install base is already out there.
I don't own a BR player or 360 (or Wii). I'm building a HTPC setup to do everything that a media streaming or console should be doing.