Despite the console's many upgrades from the current Wii, the Wii U will not play DVDs or Blu-rays. Considering Nintendo's history of atypical format choices stretching back to the Nintendo 64, we aren't all that surprised.
Nintendo president Satoru Iwata says, "The reason for that is that we feel that enough people already have devices that are capable of playing DVDs and Blu-ray, such that it didn't warrant the cost involved to build that functionality into the Wii U console because of the patents related to those technologies.
[Editor's opinion] Yes, we DO already have devices. They're called Xbox 360s and PS3s. I can certainly understand the desire to keep costs down, but Nintendo is missing the point that many people, especially budget-conscious families, do not want multiple devices. They want one machine that can provide all the entertainment.