At yesterday's Playstation Business Briefing, they touched upon the next generation console, and confirmed that the "Next System" console from Sony will be based on Blu-Ray Discs. It will still read DVDs and CDs. They touched upon the advantages of using the BD-ROM discs vs. the HD DVD.
It seems they will keep it as strictly a game machine as well, and not go the route of the PSX DV Recorder for now they stated.
The next bout of details and possibly unveiling of the actual machine, along with the first wave of games will happen at next year's E3 and Tokyo Game Show 2005 in July.