Hmm? The 360 didn't support playing games off an HD-DVD anyway -- the 360 HD-DVD player was just for playing movies. Microsoft has always been betting that 9GB (or multiple 9GB discs) will be enough for the lifespan of the 360. And, while I'm sure a company like Squaresoft can figure out how to fill up 50GB, 9GB discs probably will last the lifespan of the 360.
There was some rumour a while back that Microsoft could release a BluRay expansion if HD-DVD failed, but a Microsoft representative promptly quelled that rumour, because they were worried that it wounded like Microsoft didn't have any faith in the format.