From the Wired.com article here.
Looks like Amazon read the Berkeley cloud paper where they spent a lot of time dissecting the economics of physical shipment of cheap disk drives versus the still high cost and relatively constrained (compared to USB, at least) bandwidth of WAN links.
Never underestimate the simplicity and potential data transfer rates of sneakernet. I was reminded of this when I saw the Western Digital WDTV recently at Costco. It’s basically a digital media player with HDMI that you plug portable USB drives into. At first I thought it was dumb, but the more I thought about it, the more I realized that this is a pretty pragmatic solution. what they did right was keeping the price way down (they are something like $129 CAD at Costco). I’m trying to talk myself out of buying this and waiting for the inevitable cheap version with USB and Wifi plus the ability to wirelessly mount disks from various servers.
K. Scott Morrison's Blog 
Hey Scott–I just discovered your blog from your email signature. I just bought one of these WDTV devices a few months ago and I think it’s GREAT! For me, it allows me to create hi-def slide shows and movies using photos and 720p video clips from my digital camera. The results are far sharper than creating a conventional DVD and they look breathtaking on my plasma TV. And the connectivity is excellent–just plug in any hard drive or USB flash drive and play the content directly from it!
Prior to discovering this unit, I had resigned myself to paying for a Blu-Ray player, then burning Blu-Ray format files on a DVD (which can hold only 20 min of Blu-Ray content), then playing the disc. Now I can cut out the burning step and save money because the WDTV unit is considerably cheaper than a Blu-Ray player.
OK Carl, you sold me. I think I’ll get one as soon as I’m back in town.