well , i was waiting for someone to say it, should you need to, theres a way to double the capacity a game can use, yes, a 2nd freaking dvd
anyway, at the moment a lot, and that means almost all games use a lot of empty space basically, to try an make copying the games harder, considering people can and do copy them anyway and it makes not the slightest bit of difference obviously theres space there.
2nd the engine, textures only take up so much space, the video takes up a heck of a lot more, now, almost garenteed the game engine can fit on one disc with masses of space left, the problem is, if the case is with video it won't fit on one disc, that you will have loading issues if you had to swap discs a lot which is far , very far from ideal. while switching dvd's wouldn't be an issue in say GOW, or most games, things in a large singular world where you can choose where to go at any one time will indeed have issues. but there could be easy ways around that. there is some kinda linear story going on in things like GTA, and games like it. you could have 3/4 dvd's with much of the content identical, but most of the big video's will often happen in a known sequence, you can't do some missions before others, the general central plot tends to be linear even if you can choose to do other stuff between it. you could simple have the main plot video split on 2/3 dvd's with everything else the same, which would only mean 2/3 disc changes throughout the game, that wouldn't be at all a big deal. or for hard drive owners the option to put all video/audio onto the hdd first then play from one dvd. they've maybe wanted to do a lot of soundtracks for more radiostations in the game and lots of things they can get around.
but also, as someone pointed out, it doesn't mean its more limited than a PS3 or less limited, everything has limitations. both the ps3/xbox360 are already way way behind in graphical power compared to pc's(though theres yet to games to really use it), so they are both already limited in what they can do graphically. pc's are limited in high end graphical games because most games have to still run on 7300gtpoo cards aswell.