Well, we're talking about two things here. Delivering content existing customers can already get via multiple devices (actually less than they can currently already get) in a lower-quality format -- versus offering a low cost video service outside of their legacy footprint. In the latter case, people might be ok with a service quality hit and they could take on Netflix directly. In the former case -- what is the point? Why would a Comcast user turn off their set top and turn on the Xbox 360 to watch VOD in lower quality?
In the same article, you say it would have been better if the cable cos had been bold and delivered a service via the xbox outside their territory, then later you say the Internet-delivered cable service via the xbox would lower quality.