I checked thru the first 5 pages of this thread, so forgive me if this has not been mentioned.
This is with surround sound, right? Well there's surround sound as in Dolby Digital and DTS, and there's surround sound as in True HD DD and HD DTS and Lossless sound codecs. Big difference. Not only do these sound codecs sound much better, assuming you have a modern amp, but I am pretty sure they are HDMI 1.3a or higher dependent. 360's have HDMI 1.2 so you will be restricted to DVD quality sound.
Also, much has been discussed about the bitrate already. Suffice to say, the modern codecs on Blu-ray like H.264 and VC-1 (an MS made codec) are pretty well pushing the limits of compression. VC-1 is better for more compressed bit-rates. H.264 at a high bit rate is meant to look better. Of course, they are variable.
At the end of the day, the higher the bit-rate, the better the quality, especially in fast moving scenes. VOD will not deliver BD quality for years but for your average Joe, they see the marketing, "HD" and assume. A bit like high megapixels marketing when it comes to Digi cameras. Compare an SLR pic at 4mp to a point and shoot at 12mp, and I bet you the SLR will kill it. Why? one, compression, two - optics.
If you are pedantic about quality, stick to BD. If you are not and don't mind that model of DRM, then go VOD. Personally, I prefer to physical media and the quality :), but that's just me. I think VOD has it's place too.