I don't think the next X-BOX will be using HD-DVD, that rumored spec sheet was actually only a DVD-like format, which would keep it simple and keep costs down for the system.
Rumors suggest that Nintendo is considering a next generation blue laser format (BR or HD-DVD) as well as DVD playback & BC in their next system. HD-DVD & BR are both backwords compatible with DVD so both are likely. Matsushita/Panasonic back both HD-DVD & BR, but it's still not known if Nintendo is working with Panasonic again on the drive and/or format. Nintendo IS working with NEC though, who (along with Toshiba) is a major backer of HD-DVD, so who knows? Whatever Nintendo chooses it'll be proprietary, but maybe not as restricting as the GOD format (full-sized, normal capacity, normal price, etc.).
It still could be possible that MS upgrades to HD-DVD or that Nintendo just goes with a cheaper full-sized DVD format? But saying that they both use HD-DVD...ports between the systems would be pretty easy (as they both use the same hardware partners & disc format) which could be good leveraging against PS3's BR format, but Sony has alot of leverage with movie content for BR so it may just make the HD-DVD format even less viable for competiting system's? Or, another possibilty is that Nintendo & MS could use BR along with Sony...but I think that's unlikely going on what we know now. Nintendo & MS could also both just "stay with" DVD which means they could keep drive costs & licencing fee's SUPER cheap which could be good against PS3, but the problem is that PS3 BR ports would be very difficult to pull off. However, let's say people aren't ready for a next generation movie format and PS3's format ends up not being used so much 'cos it's the only system that uses it and/or is more expensive and Nintendo & MS sticking with DVD not only save money, but also staying out of the HD-DVD vs BR problem & end up alienating PS3 'cos of it. Not very likely, but it could happen. Also, the HD-DVD group may want some footing against BR so they may want to use the next X-BOX and/or "Revolution" as platforms to do so...which could mean they'll offer the technology to MS & Nintendo at a discount?