Everything could be done online in a similar way to Steam, in that the disc is literally only for storing the data and doesn't entitle you to play the game. Rented games could include one-use serial codes that either let you play for a specific amount of time or track your play time and bill you accordingly. The difference is that developers would actually get money from such a system.
Take Lovefilm for example, that's thousands of individual codes having to be printed for games, as they're an online based rental company it's a lot of work. These companies also allow you to rent and play for as long as you want, so if MS are going to start rubbing out the rental companies ethos of own for as long as you want, that's yet again another headache.
Doesn't gamefly allow you to buy your rental and keep it at a cost? What happens there? I see DirtyLarry occasionally keeping his rentals permanently by paying $40+ to keep the rental and actually own it.
Steam doesn't allow the reselling of games and it's been nothing but a positive influence on the industry, significantly reducing the cost of games for those willing to wait and providing a better income to developers.
Good luck if you think what MS is about to do is going to offer you steam like prices, steam like DRM (complete offline play with NO restrictions) and steam like sales. Comparing consoles to steam/origin always falls off a cliff somewhere.