Microsoft believes that if the price of disposable discs were to rival the price of rentals, then consumers would pick them since they can watch them anytime they want and don't have to return them; simply throw them away when the have become useless. Of course, it would have to compete with mail-back DVD rental services like Netflix, pay-per view and legal movie download services.
However, Microsoft's main motivation is most likely to help spread it's proprietary Digital Rights Management technology to new devices, an attempt to push it forward as an industry standard for content protection until next generation DVDs come along with their new anti-piracy measures. However, winning over Hollywood and consumers is just half the battle for Microsoft in this case.
You have to remember that millions of people just dumping disposable discs after use can not be good for the environment. Therefore the concept doesn't impress many legislators. Flexplay has partnership with disc recyclers but that's not exactly very good either when you consider it's up to the consumer to make use of that partnership instead of chucking the useless disc into the thrash.
Source:
The Register