Within 10 years, I don't see retail being the driving force in the videogame industry. Look forward to the inevitable liquidation sales at Gamecrap.
Unfortunately, if you look at Gamestop's end of the year numbers, they made a gigantic profit thanks largely in part to used console game sales. Even if they stop bothering with PC games completely, they make enough revenue on console games to come out pretty far on top.
Gamestop makes most of its money from used console game sales, yes. The one thing publishers hate more than ANYTHING is the second-hand market. I expect next gen consoles to have bigger and better digital distribution services. On the PC side, millions of people willingly surrender the ability to resell and/or transfer games in exchange for various services. Publishers see this and would kill to have the same thing happen on the console side. MS, Sony, and Nintendo more than anyone, since they'd receive more $/game sold digitally.
Consoles utterly depend on retail sales at the moment, so a digital distribution "revolution" isn't happening anytime soon. Once digital sales reach a critical mass, you can start playing hardball with retailers. Until then, they've got you by the balls.
I don't expect physical copies to vanish, but digital distribution is a long-term threat to Gamestop's business model.
If Big Media's resistance to digital distro is any indication, GS will go down kicking and screaming.