Found it. It's from an old Think Secret rumor (so you know it's b.s.).
In an effort to appease media companies wary of the security of digital rights management technology, Apple's new technology will deliver content such that it never actually resides on the user's hard drive. Content purchased will be automatically made available on a user's iDisk, which Front Row 2.0 will tap into. When the user wishes to play the content, robust caching technology -- for which Apple previously received a patent -- will serve it to the user's computer as fast as their Internet connection can handle. The system will also likely support downloading the video content to supported iPods but at no time will it ever actually be stored on a computer's hard drive.