"It's unfortunate that Microsoft's external HD-DVD drive will not enhance the experience at all for the gamer. Sony realizes that to truly take gaming into the next generation requires a larger data format for both games and movies. PS3 uses the Blu-ray format for gaming, giving developers 50 GB of high-definition storage on a single disc, while Microsoft's 9 GB DVD gaming format is an obstacle for storing HD content. Furthermore, Microsoft's announced HD games patch is really just a compatibility feature — upscaling lower-resolution content does not make it Full HD (1080p), something that PS3 can do out of the box."
Whammy! Yo Microsoft, you going to let him talk to you like that? – Travis Hudson
Sony Responds to HD-DVD Announcement [Kotaku]