Sony is slowly getting more software (movie) support while Toshiba is trying to get the hardware angle. I think Sony will "win", although in the end, whichever side "wins", it will be the consumer who gets beat up. Half the people will have to buy a second box and new movies. Yes, prices will drop, but somebody's going to have a boat anchor. The Blu Ray/HD-DVD battle is going to go on for some time. Or somebody is going to produce a full feature dual format player.
Of course, until more 1080p TVs are bought, it's kind of a moot point for the consumer. And given the number of interlaced TVs that have sold in the last three years, that may be some time.