What sucks with that confirmation is that they've thrown the baby out with the bath water. Rather than figuring out how to get the best of both worlds (which is actually quite simple) it looks like they're just giving up on their plans to allow installing and sharing games digitally. They're taking their ball and going home.
Yeah, well fuck you too - I never wanted your shitty ball anyway.
EDIT: This is what they should do:
If there's a disc in the drive, you can play the game - no restrictions, no bullshit. If you want to "borrow" a game from your "family member"'s library (or play a borrowed game), you need to authenticate online. If the owner of the game isn't online to verify the game has been borrowed, it can only be accessed for, say, 24 hours. If you want to keep playing after that, ring them up and tell them to log into XBL. This will revoke their access to the game offline (unless they put the disc in the tray), and will have to connect in order to play from the hard drive (which prevents their friends from borrowing).
You can install disc-based games to the hard drive and play without a disc if you register the game online, and those games will be available to you (even while offline) until someone else registers with that same disc (or it's borrowed by a family member - see above). The next time you come online, Microsoft will tell your system that the game has been registered by someone else and block access to it. Now, this opens the possibility of abuse, as someone can install a shit ton of games, sell the discs, and then stay offline indefinitely - never losing access to their games. HOWEVER, in doing so the user severely limits their own console, because not only can they never go online again (so no online multiplayer, no game sharing, no cloud computing, no library access on other consoles, etc.), but they won't be able to install any new games without risking losing their entire library. This makes the abusive strategy pretty unappealing, and will only come into play at the very end of the console's life cycle.
This setup gives users the best of both worlds. If you have no internet you can still buy physical discs and play them, but you won't be able to install them. If you lose internet access you'll still be able to play all the games you've installed, plus any new games as long as the disc is in the drive. If you want to take advantage of the online sharing scheme, then you have to put up with the DRM and play by the rules. Simple.
Edited by NoeL, 20 June 2013 - 07:33 AM.