Both HD-DVD and Blu-Ray use a data encryption system called AACS, the Advanced Access Content System, to restrict access to the data stored on the discs if certain criteria are not met.
Disney, Intel, Microsoft, Matsushita, Warner Brothers, IBM, Toshiba and Sony worked together to create this specification that they guaranteed would protect the content stored on the discs by requiring hardware developers to provide Device Keys for each Player that they create, at which point if there were a security vulnerability where content became vulnerable, the keys could be revoked. In turn, the player would no longer be able to read the discs.
While this is definitely the case for Stand-Alone Hardware Players, the latest bypass created by a hacker known as Arnexami removes the need to authenticate the disc prior to extracting the data, taking the "volume key" out of the equation.
Breaking of AACS is not new, several months ago another hacker known as Muslix64 created a way to bypass the content protection by reading the video content back from WinDVD's memory. In turn, it was easy to fix through an update for WinDVD; one that anyone interested in copying their movies were certain never to install.
This time around, Arnexami simply kept track of the region of memory used for buffering the disc before playback to find the Media Key, the special password used to validate the disc and start decrypting the data. This method could really stick as a long-term way to copy these latest generation DVD successors as the keys would need to be read and stored into memory at some point in order to decode this data.
There are some ways to get around this one vulnerability, such as reading the keys directly into the Processor's Cache Memory, performing the calculations and writing the decode key back into System Memory for playback after everything has been authenticated, however this would just be a short-term fix because it too is vulnerable.
It seems that the more creative media companies become in creating copy protection systems, the more determined the "community" is to bypass the protections.
The very first DVD copying system, DeCSS made by Jon Lech Johansen (DVD Jon) was intended as a DVD Player for Linux, because multimedia companies refused to license the decryption system to the Open Source Community to create Linux DVD Players. However, by it's first public release, it turned into a DVD copying system.