BS.
There was HD-DVD which they were behind, but not enough to put their money where their mouth was. They slapped the 360 together, rushed it out the door and paid $1B+ for their mistake. They could have used HD-DVD, included Wi-Fi & HDMI and had consoles last more than months.
You don't think they (or the devs they worked with) had the foresight to see games needing more than 6.5GB in the next five years? The only reason they crammed them onto single DVDs for the last five years was to accomidate the 360's limited storage, which now they are blowing off for the sake of not screwing everyone else ( PC/PS3 ).
P.S. They almost released the 360 with 256BM of RAM, if they had you would you be arguing that 512MB was impossible in 2005?