I'm not going to spin this as "good news" in any way for HD DVD. It isn't. It's bad press and it also is not good when any retailer (whatever the size) decides to back the other format exclusively.
However, I do agree with the HD folks that this is a shortsighted approach. While saying "70% of our rentals are blu-ray" sounds impressive, what are the total numbers we're dealing with? Because, as we've seen from the sales figures, the market is very small right now. To pick one side for rental only a year in with small adoption rates for HDM in general seems silly to me.
But, that being said -- and again, I'm not downplaying the negative press here -- we're dealing with a company lost over a billion dollars a year from 2002-2004. They've closed hundreds of stores. They posted a $46.4 million loss just for Q1 this year. They aren't the major player that they were back in the late 1990s... and the main place that are seeing any growth right now is on online rentals, where they are format-neutral.
Ultimately, I think that Blockbuster found that HD rentals were slower than anticipated and decided to stick with one format to (a) help end the war and (b) reduce stock requirements for a slow moving product. History will tell if this was the right move or not, but if they see any growth they're ignoring, this is a decision they can change quickly.