A lot of blogs are catching this news and rightly so. This is great news. The best way to summarize it is what Peter Barret said on The Next Net.
When Microsoft TV CTO Peter Barrett visited me around that time (watch the video), I asked him if the Xbox video download service would be a precursor to full-fledged IPTV on the console. His response:
For the Xbox Live media device, you download the video to the drive and watch it from the drive. The experience is most close to a DVR. Where it gets interesting is when that device is being used also as a set-top box and have that broadcast live events. In that scenario, it would be a service provider set-top box that happened to be an Xbox. If we were to do such a thing, it helps with subscriber acquisition and it is a powerful set-top box.