If streaming data off a dvd or blu-ray is a bad idea,then why is PS3 using it? It sounds like your saying that using the hard-drive makes more sense.Which states my point.
As for more space needed yes,but with what games are like on the current consoles it not a big issue...Like i said 2,3 disc's = more space,that then is transfered digitally and magnetically to the hard-drive,meaning you only need one disc because the hard-drive has given you the extra space. Also about the data speed,todd howard said he prefers xbox..it's smoother...which means the data being read from the dvd or hard-drive is fine. If disc space/DVD's was such a problem right now with the current gen of games,all or most xbox games would come with 2 or 3 disc's...and they don't,it's only the odd one or two games that have...But the hard-drive solves the problem,you have the extra space + you still get to use one disc.
Data being read from the DVD only is not fine, as evidenced by the frequent load pausing Oblivion suffers and just generally longer load times. Just because something's a bad idea doesn't mean it's not done - it's a bad idea but at the 360's launch there was no alternative. For most games all loading takes place either in one big chunk (The "loading screen") or the majority is and the rest is streamed in in the background before it's needed. Open world games can't do this, they need a lot of data and they need it 5 frames ago, and you simply can't get either the read speed or the seek times from an optical disc. It's not even a point worth debating, the numbers speak for themselves.
As I previously stated, you don't need to be over the limit consistently for it to be time to get a new medium. That's a terrible idea. You upgrade just before you absolutely require it, not a year after you absolutely require it - and we're getting close to absolutely requiring it in some cases.
While installing a game to your drive does fix the issue (What's that, advantages of a console? You're slowly dwindling to nothing?) it also adds complexity, and in the case of the 360, actively locks some users out. It's not a viable solution, especially given the pathetic sizes and insane prices of 360-brand drives.
I feel I should reiterate for effect: You don't wait until something has failed before you replace it. You replace it when it's about to fail, or showing signs of failure. DVD has not yet failed, that does not mean it is not time for a replacement.