I think we're at least 2 generations from wide spread DD in home consoles. The next console will still have an optical drive of some sort and physical media but there'll certainly be a much higher reliance on DLC episodic and expansion gaming. However, the next round of portable gaming will be all DD as evidenced by the Go, apple, and DSi.
That being said, I really wonder what publishers and developers think of DD as a business model. It certainly makes pirating harder, diminishes the secondary market, and perhaps reduces the costs of distribution. I question the latter since they have to still try to work with retailers and offer some kind of code on a card system or something so there'll always be shipping and producing costs linked to some kind of physical product for store display/sale. I can't imagine that much savings over existing systems since manufacturing and shipping are so cheap with the big boys (although it will certainly help the boutique publishers/developers).
I see a major problem with DD and I wonder what their take on it is. My problem is that while they essentially don't get any money from secondary (used) sales, I have to believe that they still want it because it makes buyers less risk averse in buying and trying new games. They know that a buyer will take a chance on trying out a new game because they know that if they don't like it, they can at least sell it or trade it in for some money back to buy something else. With DD, there's no "safety net" as it were. I think it would make gamers extremely risk averse in buying games - at least that's been my gaming experience pre-CAG. I played/bought maybe 10 games or less (only AAA releases at that) total between 2004-2008 before I discovered CAG. On the other hand, I've purchased no less than 10 games in the last 2 months just because of deals relating to used games, knowing that I would complete them and sell them right back.
In the end, I guess if new DD games were about 50-75% of their current MSRP (and subject to frequent sales like steam of app store), it might not be an issue at all for people like me.