It may well be a beaurocratic restriction rather than a hardware one. Perhaps they take a smaller cut of the profit off Arcade games and thus want to limit the number of games in that list. The result would be that games that are especially large or polished would be forced to go through a standard release (followed by a Games On Demand release) and not just be on the Arcade.
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Spending as long as I do here, it's easy to forget that Oddworld has actual fans.
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