Mr Iwata has said that yes the game will be available for purchase in regular box form, AND as a download title. You can download it from the eshop and save it to your sd card when it is released. you will not be able to share the game with another system. This will also be done with Wii U games. At launch Wii U will start allowing downloading games in the same form. It is like Nintendo is stepping their game up. Very "Valve-ish"

Can the 3DS handle entire games stored onto it?

Seeing how the games are about 2GB, it should be a problem...