A few things.
1) After seeing the final outcome and insider information about HD DVD, its obvious Microsoft only played a supporting role in HD DVD. They were not willing to sit at the studio bargaining table nor were they willing to aggressively promote their HD DVD addon at a loss to them. They did run some advertisements the first XMAS the HDAO was available, but after that date little was done. Even in terms of price they were extremely conservative, dropping the drive a whopping $20 over its lifetime before the war was over.
2) I do think MS was behind HD DVD and would have liked it to win, as it would give them full participation in all aspects of the home formats. However they did not seem confident enough in physical media to get behind it fully, instead reserving their big guns for downloads.
3) Finally, I think some perceive downloads wrong - thinking that you won't want to own 500 movies on a set-top hard drive. Once we get some quality set-top boxes in, I don't think you will need to worry about buying that many movies anymore. A good STB should have IMDB-like info available for all your movies in easy to browse format w/ cover art sortable by genre, etc. If you want to watch a movie, it costs you $5. While there might be 10 or even 20 movies you might want to watch more than 5 times that would justify buying them, that is a far stretch from 500. I have a shitload of DVDs and I must say most of them I haven't watch more than 1-3 times max. If I had rented those, I would have saved a shitload of money. We don't rent now because its nice to have the library to browse through... But if you can have that same library without owning the movie at your fingertips with the covers, actor info, etc, whats the big difference? And before you say long download time, its quite obvious that will be gone in the next couple of years also:
Internet: Comcast Unleashes Super-Fast Web Speeds, by Rachel Cericola - Electronic House Product News