The underlying encryption on both the Blu-ray and HD DVD high-def disc formats has been cracked. That's the word from user arnezami on the Doom9 forums, where anti-DRM denizens have been hacking and slashing their way through the AACS (Advanced Access Content System) encryption algorithm found on all Blu-ray and HD DVD discs. Previously, Doom9 user muslix64 had cracked the encryption keys to individual titles, but the newly uncovered "processing key" is said to be the Rosetta Stone for all current titles on both HD disc formats.
We haven't independently verified this crack, but given that even the AACS Licensing Authority has admitted the previous muslix64 hack, it's entirely plausible. With the processing key in hand, software could be created that could rip HD DVD and Blu-ray titles to a PC's hard drive. There, the movies could be viewed with playback software or--more nefariously--uploaded to file trading sites where they can be copied and pirated ad infinitum (albeit slowly--HD movies can range in size from 15 to 50GB). That's exactly the scenario that Hollywood studios were hoping to avoid. Exactly how the content providers and the hardware manufacturers will respond to this latest potential piracy challenge has yet to be seen.
For the technical details on how the key was obtained, check out arnezami's post on the Doom9 forums.