The initial quality of video downloaded from iTunes was terrible. It was easy to find illegal downloads of better quality which was about when I stopped buying shows on the service after the initial novelty wore out.
It's improved since then, but now the issue is paying $36-40 for a season of shows vs. the same or less (depending on sales) for the same season on DVD. Optical media has the extras and still, slightly better quality on average (comparing standard def downloads to standard DVDs). The only disadvantage to buying optical media is storage if you're the type of person who owns/buys hundreds of movies and shows.
720p video looks fine on a typical computer monitor. It will look fine on a typical 32" display or smaller. But for home entertainment systems with larger displays, the difference is undeniable.
