Probably Anti-Piracy Measure Rather Than Increased Capacity
The Xbox 360 frequently comes under fire from pundits and developers alike due to its DVD disc format, and Microsoft have announced that they're now beta-testing a new standard. Rumours suggest that this new format will slightly increase disc capacity (giving developers more space to work with), but will primarily be a defence against piracy. More details below.
In a recent blog post, Microsoft PR Guru Larry "Major Nelson" Hyrb announced that US Xbox 360 owners could take part in a testing program for the new disc format that will "improve" upon the current DVD offering. As well as netting a copy of Halo Reach for testing usability updates (sorry fellow Europeans, but we're not eligible for the trials), they'll be used as guinea pigs for the "updated Xbox 360 disc format" that may soon become the gold standard for Xbox 360 development.
Current rumours - and rampant speculation - suggest that the update will kick the format up from XGD2 to XGD3 (standing for Xbox Game Disc, natch), and possibly provide an extra 1GB of disc space for studios to do with as they see fit.
However, the main objective is probably an anti-piracy measure. Currently it's possible to make an image of an Xbox 360 title and burn it onto a commercially-available dual layer DVD... but since this new format would be proprietary, this should effectively cull the practice for future games. For a while, at least.
And, no, this new format is not in any way associated with Blu-ray, as Hryb told IGN during the night.