Totally agree.  The success of the iPhone/iPod touch/App Store have clearly demonstrated that physical games are not only unnecessary, but their associated costs (which then make a publisher mandatory) negatively impact developers (large and small) and consumers (who have trouble affording them, which then affects developers).

Sony obviously realized the PSP's days were numbered if they didn't drop the UMD albatross in favor of digital distribution and I can't imagine Nintendo launching a new portable system with yet another type of cartridge.  When both of those mobile, download-only consoles launch, the next logical step is for next gen home consoles to do the same whenever they're released (late 2011-2013, perhaps?).

If Apple's smart, they'll open up the Apple TV to third party software the same way they did for the iPhone, in addition to upping its specs and partnering with Netflix and/or Hulu for subscription and/or ad-supported content, respectively.  Bundle in an iPod touch controller (or a pointer remote, which turned up in a fairly recent patent filing) and you've got the fabled Apple game console.