There's no way Microsoft will install a Blu-ray drive into the Xbox 720 and to be quite honest, there's really no reason for them to do so. The reason is simple: Microsoft doesn't want to pay a competitor -- Sony, the key backer behind the Blu-ray Association -- to use its format. Secondly, and perhaps most importantly, Microsoft realizes that Blu-ray isn't an ideal format, given the fact Blu-ray's chance of success is very much in doubt.
The single benefit Blu-ray provides to developers is its capacity. But once another generation rolls around, doesn't it stand to reason that producing DVDs will be even less expensive and it may yield a more cost-effective approach than using Blu-ray anyway?