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I think if Blu-Ray is going to have success in the market it's going to be as a combo player that's sold to people as a way to watch their current DVD library while seeing the new super block busters (the movies that benefit the most from HD quality) on Blu-Ray.

Of course this won't be done because the movie studios mainly want a new format so they can resell everyone the movies they already own (just like they did with DVD). The public on the other hand will be highly against this since they bought their DVDs with the belief that they'd never have to rebuy those movies again (unlike VHS tapes which degraded in quality the more you watched them).