Yes hard drives can fail, that is why there will be redundant external storage with the Memory Player.
Yes optical storage is pretty durable but scratched discs, miss filled discs, and lost discs will be a thing of the past which is a good thing.
However, valid your point is we are all moving away from owning content in its native form.
With Fios, Satellite TV, and other such services high speed down loads of content is the future. CD sales will eventually be as quaint a concept as spinning music via an LP. Just try to find a good record or cd store, Tower is a shinning testament to that future.
Don't get me wrong I love my albums and cd's but this future is inevitable. The wholesale adoption of the Ipod proves my case. Our children will grow up in a future without software in a hard format, the handwriting is on the wall.