MOD can be used as a "stalking horse" to test the viability of a title. While it hasn't been used directly yet, I suspect that indirectly it has been. Certainly Warners has restored films before MOD release based on the MOD popularity of similar titles and the expectation of sales. More and more new releases have nice packaging and new transfers.
I expect more of a mixed strategy, with titles initially being pressed with traditional methods, transitioning to MOD when the pressed titles are exhausted.
It is also likely that MOD technology will improve. Warners is now guaranteeing that their MOD disks will not degrade, so even if they do, the customer has recourse. My library has so far seen a much higher attrition of DVD's than of Warners MOD titles (with Universal leading the way in DVD's that no longer play). All of my MOD's still play. Of course, this is much too early to say.
MOD also eliminates the "middle man" in the retail chain. With fewer and fewer stores carrying any appreciable number of catalog titles in any systematic way, this is a benefit to the customer as well as increasing the studios' margins. The only national stores that are even trying are Best Buy, Target, and Wal-Mart, with Best Buy doing the best job. The days of the big super video store are truly gone.
MOD and direct mail are the future of packaged media for titles after initial release.