Pointing to procedurally-generated content as the reason why high-capacity storage is unnecessary for games is, well, a bit myopic. Consider that the demoscene has been around for the better part of two decades, yet virtually no high-profile games have made extensive use of procedurally-generated content. (Spore will likely be the first.) Back around 1999 I remember seeing the finalists of a 100kB demoscene contest which were entirely composed of procedurally-generated content: textures, animation, character models, particle effects, level architecture, sound, music -- everything was procedural. And these demos looked as good or better than Quake 3 (which was on the cutting edge at the time).
So, if programmers have known about these techniques for so long, why don't games use them? I'm not a developer, so I can't tell you for sure, but I imagine that it's just easier and more efficient to create prefabricated content. Maybe one day procedural content generation will be easier and more efficient for most game developers, and when that day comes Blu-ray and other high-capacity storage mediums will be obsolete, but IMHO that day is probably far off.
Of course, what do I know -- maybe ProFX will turn out to be the next big thing, and huge texture sizes will become a thing of the past much sooner than I realize. The thing is, I've been hearing the "procedural content generation is the way of the future!" mantra for over ten years now, and have yet to play a game that uses it. I'll believe it when I see it.
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