Sign-ups are now open at Microsoft Connect, with Major Nelson saying that the company is "looking for multiple thousands of participants, so your chances of making it in are good." Unlike with last fall's update preview, there's no mention of this update prohibiting participants from playing online or voice chatting with Xbox Live members who aren't part of the beta program. The preview is restricted to US residents, though both Gold and "Free" Xbox Live members can sign up -- with Gold members given the priority come selection time.
As for the new disc format: Since it will need to remain compatible with current 360 disc drives, the update is likely just related to copy protection -- in which case, the free copy of Reach probably uses it. We've contacted Microsoft for more details and will update as we get them.