Henson told us that the files would indeed be stored locally on the 360's optional hard drive unit; there would not be an option to stream videos from your Windows computer (after all, there are already ways to do that). The files will (predictably) be in Microsoft's proprietary WMV format, which has already proven to be a reliable delivery mechanism for HD content. Using this codec, they estimate a 22 minute high-definition television program (sans commercials) will weigh in at approximately 1GB, while the standard definition variant (which you will automatically own as well) will top out around 300MB. Due to bandwidth considerations, storage realities, and their insistence that 720p is the "sweet spot" for high-definition content, all Marketplace movies and television shows (like the existing trailers) will max out at 720p.

Thanks Joystiq