Doesn't make business sense
It makes alot of business sense:
1) Attach rates for HD DVD are clearly higher than for BluRay. As much as BluRay hardware (thanks to the PS3) greatly outnumbers HD DVD 300 demonstrated that BD could only command twice as many sales. Statistics like that talk.
2) HD DVD players are fast reaching the 'mass adoption' figure of US$200.
3) By concentrating on one format Paramount can increase their output.
4) Paramount have an established working relationship with the DVD Forum - since 1996 and the arrival of DVD. HD DVD is an official format of that forum and Paramount are obviously comformatable working with them. The finalised spec of HD DVD has cited as proof of this - Paramount are obviously a little twitchy about ongoing changes to specs.
5) Paramount want to start using internet features and enhanced features. At present HD DVD can support these, BluRay can't.
...all in all then Paramount's move makes a fair bit of sense.
As for the news itself - I think it is fantastic news. For dual format owners this is great - it has incited Fox to start releases again. And anyone who isn't dual format only really has themselves to blame.