The HD-DVD vs. Blu-Ray vs. Downloadable Content can be viewed many ways. HD-DVD has been superior to Blu-Ray up through Q4 '07. Even with BR's superior storage size, HD was producing better picture and sound quality. Now that Sony has ironed out a lot of the kinks, they are finally producing a quality product. That said, I still believe HD is a better choice for consumers, but it all boils down to studio support.
Back when VHS and Beta were going at it, the major advantage VHS had was the support of the porn industry. Today, that isn't as much an issue because of the internet. HD needed more studio support, but Sony had their claws so deep in the studios that BR had that nothing was going to sway that. WB saw that and decided to make a financial choice to force a format to win out. Otherwise if the war goes on too long, consumers will have nothing to adopt to and a new technology will develope. An obvious next step would be holographic memory, which is still in development.
However, in regards to downloadable content, I think we are many years away from that. A lot of people think the industry will switch to downloadable rentals, which it may, but movies will still need to be available in physical format...for so many reasons. First off, HD movies...even compressed ones...are around 7+Gb large. Hard drives haven't come down enough in price to make that a feasable option for most people. Secondly, if you want to take your movie with you, to a friends house or in your portable DVD player, DC wouldn't let you at this point. Plus broadband saturation is at around 50-60%, which isn't enough make an industry wide change. Also, look at the popularity of TV season DVDs. Several years ago, no one would have thought that buying shows you already can watch for free would be as popular as it is today. Lastly you would have to have something to download it to, PC, DVR, 360, PS3, etc. and not everyone does. Everyone has a DVD player and it's easy to run to the store and buy your favorite movie. The average consumer can do it...even grandma and grandpa.
Until the technology generation becomes the majority of the population, things will stay the way they are. Which means hard copies of movies and TV shows.