Microsoft in talks with Sony - Blue Ray

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Thing i don't get right, maybe someone can explain this.

Are all xbox360 developers limiting themselves to 4 GB for a game, or whatever the maximum for a DVD is? Surely this will be a draw back eventually when the level of content for games goes up, as it always does.

With 40-50 GB for PS3 developers to work with, there is surely no chance of PS3 games getting ported to the xbox360?