Howdy,
It would be my guess that Micro$oft will redesign the system somewhere around the projected "half-way point" of its life cycle. They did not do this with the X-Box and it ended up looking a bit cumbersome and silly next to the revised Playstation 2 (which looked nice but was very fragile...which is a "bad thing" around children).
Were I Micro$oft, I would combine the HD-DVD, since it is backward compatible with regular DVDs, into the "revamped" redesign of the unit (or product as salespeople are wont to say). Then I would drop the price by no more than $50 -100 USD, since Micro$oft appears to be mostly concerned about the bottom line, rather than meeting the needs of the actual user of the product.
Chris