My post from another thread:
The fatal flaw with your hypothetical is that most of your content providers are in some way owned by service providers. Take HBO for example. You can only have an HBO Go account if you are subscribed to regular HBO through a standard service provider because HBO is owned by Time Warner.
Sony would be more able to sidestep this as they're a content provider themselves, but Microsoft isn't going to change the game with regards to how we access entertainment when that change negatively impacts the content providers.
Consider Hulu, a monetized on demand distribution model created BY the content providers. Despite that it still falls far short of universal membership. Hell, one of the major networks, CBS, offers zero alternatives beyond traditional service providers and OTA broadcast.
Microsoft might be planning for this kind of on demand content revolution, but they have literally zero ability to make it happen. They're at the behest of content providers finding a business model they deem acceptable.
I'd say Microsoft is far more likely to leverage the Xbox 720 as a replacement for your actual set top boxes themselves, going after Motorola, LG, Pace Micro, Thomson, etc.. Instead of getting a one dimensional cable box that your cable company charges $5 a month for having you'll instead have the option of paying an additional $200 up front and $10 a month for a Microsoft Xbox 720.
Hence where the additional ram comes into play. The 720 will need to allow near on the fly flipping between games, digital distro, DVR, and live cable while also keeping a media guide with adequate buffer at the ready.
As for Sony - I'd say this generation will start out as a continuation of their "all about the gamers" mantra they've ended the PS3 with, but long term they'll move towards a streaming model like Gaikai to give the system an artificially long life. It will therefore almost surely support 4k output and have a robust network component, I wouldn't even be surprised if they build it to be hardware ready for WiGig (802.11ad), with a firmware update activating it once WiGig rolls out in full force. That is the future for Sony's business model - content distribution via cloud computing anywhere, any time.