There's a tradeoff between discless play and used games; allowing both leads to massive piracy (in somebody's mind). It looks like MS has gone from one extreme to the other.

Used games IMHO are a menace. How many software companies give away transferable licenses? (apart from Open-source licenses)

It isn't fair to the publisher/developer. I'd rather have seen a price change to facilitate more ownership rather than used games sales. EA's implementation sounded a bit practical to solve the used games market.

In the same way that used books and public libraries are a menace?

There is no intrinsic social contract that stipulate media creators should/must be paid per-consumption.

There is if the content provider stipulates one as part of the terms of the consumption. That is, "If you consume this, you can't give out copies."

No one's making you agree to that.

Right, and this is the market rejecting these terms.

The current standard terms of consumption for console games includes the ability to give your copy to someone else. There is neither a legal nor social contract that these games be paid for per-consumption.

What we saw is Microsoft trying to change that. The market has responded clearly and unambiguously.

So no one (short of the pirates) has violated any terms, legal or social.

It's the market threatening to reject these terms. That's different from actual rejection.

What we have is a vocal minority responding clearly and unambiguously. The size of such a group, minority or otherwise, will not ever be known, since Microsoft has not sold anything to anyone yet.

Why should games be different to books or DVDs or CDs?

Why is it fine for me to sell a book second hand, but not to sell a game second hand?

Why should downloadable games be different from physical media games? Both are the essentially the same bits and bytes. Why does it matter whether the bits in question are delivered via sneakernet or internet?

Enabling resale of digital goods has very high risk of crashing the market, as they almost by definition do not degrade in use. Historically the second hand markets have been limited by local availability, but internet removes such barriers for digital goods and that makes the situation very different for games compared to conventional items such as books.

Before the days of Steam; most PC games were transferable.

It would be relatively trivial from a technical perspective to allow virtual game licenses to be gifted from one XBOX ID to another, or even transferred to a serial key which could then be sold/traded by individuals or third party retailers like GameStop.