IF Microsoft decides to do online only then I can see this really hurting them. There is a huge number of people in the world who have 360s that are not hooked up to the internet or who have dial up still. Heck a large amount of people in the midwest USA do not have reliable internet still in 2013. The broadband infrastructure badly needs an upgrade.
If they do this then they really risk losing users. Sony and Nintendo may end up getting a user boost. Sony may end up the winner again, for the first time since the PS2/PSX days.
I cannot see why MS would do this other than being online for advertisers. I don't think piracy is that bad on the 360. I'd imagine it would be even lower on the 720 since games are going to be even bigger due to Blu-Ray's 25+ GB storage vs DVDs 4.7-8.7GB.