30GB is not enough capacity for HD-DVD

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Correct. At equal bit-rates both VC-1 and AVC will beat MPEG-2. No doubt. The upcoming titles Over the Fence and Casino Royale will be AVC encoded. So, as promised, Sony is transitioning.

But, right now Microsoft and VC-1 is all about pushing down the bitrates to squeeze things into HD DVD's specs, and to train compressionists for the non-disc push to come. It has nothing to do with maximizing quality.

There is nothing available that allows VC-1 to be properly used on BD. Microsoft has chosen to play lip service to BD support, while refusing to join the BDA or produce an encoder specifically tuned for Blu-ray.

What they have done is come up with a tool that allows a studio to port the HD DVD VC-1 encoding to Blu-ray. This is how Warner does it.

The key aspect in favour of MPEG-2, from a studio's point of view AND for those wanting lots of content is: Encoding to MPEG-2 is fast and cheap. Commonly it takes a few days to encode a BD title in MPEG-2 and a few WEEKS to do the same in VC-1.

It takes much longer than MPEG-2 in AVC too, but at least there are a whole bunch of companies working on hardware encoders.

Gary