Actually, from what I know (bad me for reading about PlayStation 3 news), only Blu-Ray uses MPEG2 codec, the other codec which HD-DVD uses is VC1 (I think, not too sure on my memory). Now I can say that Lordsmurf has knowledge way beyond what I have, but there has been rumors that the H.264 may be used. Sony is releasing PlayStation 3 with Blu-Ray equipped, and on top of that it seems that Sony doesn't want to use the codec which HD-DVD uses (in other words, Blu-Ray being a supposed superior format has less quality than that of HD-DVD). However, apparently this is just because of first-generation disks and etc, or the model itself.
Now there's only one thing that irks me about this war and that is Microsoft is joining the HD-DVD camp only because it seems that Blu-Ray is on Sony's new PlayStation console. Blu-Ray is backed up by every company including the likes of DELL, Universal, and Sony's own in-house corporation. Although it is true that these new HD Disks for movies are dumb, the use of it isn't. Being able to theoretically (again theoretically) have a 200GB Blu-Ray Disk is much better than having a 22 DVD Disk whatever it is, to carry around.
I also want to share my experience with Best Buy, I recently went to Best Buy, and overheard about Blu-Ray, on many forums I read they say that Best Buy employees are encouraged to tell all consumers that Blu-Ray is much better than HD-DVD. I clearly heard him say "Blu-Ray is the winner in this war because Sony is releasing Blu-Ray along with PlayStation 3." Either way, regardless of what happens, if Sony's PlayStation brand lives up as it did with its two predecessors (both of which have sold more than 100 million? or was it just the PSone) the PlayStation 3 will put 10 million Blu-Ray devices in the homes of people by the release to 9 months after (if it follows in the PlayStation Portable way which has sold 10 million).
One more information about Blu-Ray and I'm done, lol, too much of me talking. Some developers state that the PlayStation 3 has very strong hardware and that their project wouldn't have been able to be made on the Xbox 360 due to having 9GBs and they wanted a full capacity of the 25GBs. Now this is COMPLETELY wrong, I mean, I'm betting the new PlayStation 3 games won't even surpass 18GBs (2 DVDs). If they are using most of the FMVs in High Definition, (as Square Enix, Final Fantasy) does, it's understandable why they would want that space to put MPEG-2 HD Encoded material. But, however, I do see that in the future it is possible the space provided by Blu-Ray will be a good use. It'll be just like CDs, still used, but there's still DVDs, still used and then there'll be Blu-Ray (which...is used, but not like it matters).
I'm just hoping that Blu-Ray doesn't fall into the sad sad life of the UMD Movies, which had a FANTASTIC launch and sales until all companies but Sony themselves (who has indeed stopped some releases) stop releasing movies for the PSP. Of course, this is the problem...you could only play it on PSP, what if the same goes into effect with the PlayStation 3 Blu-Ray? "You can only play it on PlayStation 3 because Blu-Ray players cost over a 1000 dollars". Now...time for me to waste my money on a 599 priced PlayStation 3 (or I'll just wait it out like I did with the past two).