This could be completely bias coming from someone that works in a game shop, but I feel I should poke my thoughts in too.
My main worry about things going digitial is that it could kill off what I class a 'B Class' game. All those games in between casual and triple A basically. I think a great deal of why these games survive is due to the trade in business. People nowadays sadly are not willing to take the risk on something they are unfamilar with (It is very depressing selling only Fifa/CoD on a daily basis). However, if they are able to trade them in if they don't like it/exchange it for something else within 10 days, then they're willing to give it a go. Without the facility to do this, I can't see many people stepping outside their comfort zone whether it's a triple A game (e.g. Halo) or a casual game (e.g. Angry Birds). Now I'm not silly enough to think this would completely kill them off, but I think it cause some serious problems with these games, and I for one don't want to see the Bayonettas of this world not getting a chance.
On a much more factual note, we simply son't have the infrastructure yet to support such a system. Broadband speeds are currently not high enough not to mention bandwidth limits which also affects cloud gaming to a much larger degree (i.e. downloading Skyrim = 5.5GB, streaming Skyrim for 120 hours = christ knows!).
From a personal point of view I like actually owning something I buy. I will always buy a physical copy over a digital copy wherever I get the choice. I think the best compromise would simply be to offer both. There's also a bit of a problem with pricing which needs to be sorted, although apparently won't be an issue with Wii U. £40 for a retail copy or £60 for a digital copy... well let me just give that a moment thought.
I think digital only has some problems at least as it is now, I want a choice of a physical copy too and I would not want to see second hand games disappear (not from my bias point of view I might add!