I don't know if this is directly related to this discussion, but Silicon Knights is suing Epic over the Unreal 3 engine. These two stories on IGN,
August 11, 2006 and
July 19, 2007 seem to indicate a fundamental problem with the engine on the 360. While this may mean a general game problem, SK's signature game Eternal Darkness on the Nintendo GameCube was a hor+ widescreen game. Denis Dyack may have our backs on this.