Excellent points guys, but what was the stopping force behind wild success of 3" media? One word, "capacity". Over come that with improved single capacity and multi-layering, and the point becomes moot. Look how we ditched CD for MP3. Whole new format, whole new concept, it can work if marketed correctly.
Sure, the larger disc will always give us more space, blah blah blah.
I still say higher capacity 3" BD movies have a chance.
So what will be the driving force behind this media? Play Station Portable II with blu-ray support. 
Think about it - the PS3 is already saving our blu-arses.
But c'mon, guys - 250GB in a 3" optical disc. That is a whole new level of coolness!