I'm not even using hidef Internet content. I'm getting HD content from my local cable company and pairing that up with a DVR box. And it is AWESOME. I have more movies available to me than I know what to do with. I essentially watch one movie a night now, and I STILL have a backlog that is only growing. The picture quality is amazing, the movies are new and good, and I can watch them at my own convenience. I really don't have anything more to ask. Sure I could ask for MORE movies, or HIGHER quality, but we're seriously into the case of diminishing returns here and I don't need ANOTHER device in my room to get those extra benefits.
Of course I'm not a big collector of movies. I watch a movie, and I'll watch it again when it's on TV but I won't go out of my way to buy a movie so I can watch it whenever I want.
That's why it's not just digital distribution that is competing against disc media.
It's Internet, Cable companies, TiVo's/PVRs, and Discs that are all competing together. And I think that discs are last gen thinking that will go the way of the CD album. Blu-Ray will be relegated to the hardcore niche that care about and own 7.1 audio systems. For movies I can't tell the difference between normal stereo and 5.1 so obviously I'm not the target market.