This blog here claims that both formats will lose. (Dead link)

That would mean an odd type of failure for the formats. People would have the ability to play the new, special discs, but perhaps no desire to go through the trouble.

“Right now, particularly with regards to content, it isn’t where it needs to be, to be compelling,” he said. In some cases, he pointed out, you can get better image quality just by using a standard DVD player with an upscaler.

Ew. Not good for Hollywood – especially since studios are banking on all of us going out and repurchasing HD versions of the DVDs we already own.

That’s the silly way of looking at it. That people are going to go out and buy a whole bunch of Bluray discs for DVDs they already own. Chances are, they’re going to be perfectly happy with the DVDs they already own. They’re used to them looking the way they do. The way that Bluray or HDDVD would win is on people buying brand new movies that they DON’T already own. Buying movies is very much an impulse buy in many cases. Sony’s already been positioning the Bluray kiosks in stores where you would walk by them to go to the checkout line. Kiosks with several copies each of 10-20 movies. Someone who has a PS3, who has a pile of PS3 games with the same style of case, with the same friendly Bluray logo on top might just see a movie they like, then snag the movies as they’re going up to the register. 

The second arrow in their quiver would be that they’re going to use the PS3 as a DVD player, just as they used the PS2 before it. It will look better than their old dvd player because it’s upscaled to the native resolution. They’re going to get a true example of their full resolution though with the games. that 480p will look enough worse than the 720p gameplay that they might seek out discs in the future that will run at the full resolution. 

People can tell the difference more than these pundits in the media make out. My father isn’t even a hi-def fanatic and he always tells me how much clearer 720p digital tv is to 480i tv. All you have to do is put an example in front of them. When they see for themselves the difference between their 720p bluray games and their 480p/480i DVD movies, they’ll want to get more movies that look as good as the games.