I was skeptical of this move at first, but I think the argument is fairly sound. I think a lot of commenters are focusimg on the technical aspect of the service and I agree, Hastings is being disingenuous when he says "they're two totally different businesses". What I think makes a sound argument is that they require a separate marketing approach.

Streaming is only a separate business model insofar as there are fewer degrees of freedom because of the studios; otherwise it's just a difference in how you deliver data. But that difference could be important from a marketing perspective. As Netflix pushes the streaming model, they risk damaging the DVD business by association. So it may be better to rebrand DVD business and carry it forward with a message concentrated around its (rather massive) benefits. That move is even more important if streaming becomes more competitive im the near future; war between cable companies, studios and streaming companies seems pretty likely, so the streaming space may become even more dangerous even while the conflict extends the life of DVD delivery.

So yeah, probably about as sound as a business decision can be. It may not work out but that's not guaranteed avoidable under the old setup either.