Absolutely physical media. Downloaded media can be easily lost and not everyone has a hyper fast internet conection. That latter one is just a matter of time though.
To tell you the truth I think discs are too frail and I miss cartridges on consoles.
Cartridges FTW

For games, I don't mind digital distribution.

For movies, I prefer physical media to purchase. Digital Distribution works for rental as it is now. There are so many DRM schemes and the lower quality (macroblocking, etc.) is very noticeable to me.

I prefer physical media because you can lend it to your friends or sell it if you don't like the game. Also digital downloads don't go down in price as frequently.

I do see the advantages such as games will never be out of stock or rare so they will always be available.

I prefer the physical disks, as I usualy look for deals. MSRP is just too much for me, and the digital downloads almost always (steam excepted sometimes) adhere to that.

So, while some people paid $5 is MS point for geometry wars, I paid $5 for a copy of Live Arcade Hits vol1. Pacman CE is $10, I paid $15 for the arcade compilation disc from the arcade model. I also picked up Namco Museum for $20, and that included 9 full Live arcade games plus numerouls old games. The $30 Sega compilation would have sold for $300 worth of Wii points if you bought them individualy. The few DLC Arcade games I have I bought on sale, with the exception of castle crashers.

RB/GH songs are about $2 each to pick and choose your own song. But when I buy the disc based games used, I pay on average fifty cents a song. So I may have to switch discs a bit between RB1/RB2/GHII/GHIII/GH aerosmith, but I built up a huge music collection for a lot cheaper.

Physical. I dislike Digital.

digital has no box, so no.

Physical all the way.

Digital easily. Assuming both have the same caps, and the same games, storage capacity (etc) - digital wins for me.

I hate changing discs in my Wii - its much, much nicer being able to select/download/play games without any physical interaction.

Pretty much the only *real* downside I see to digital: you can't easily lend games to a friend. But the tradeoff is, the games are cheaper - and typically sell more units.

Digital for me.

Cases in point:
-WiiWare and VC games, available from the channel menu, no disk changes needed. Very easy to use, easy to buy, and of course cheap.
-iPhone apps, the ones you use are available on your phone, the rest are stored in your computer. Super easy to buy, where ever and when ever.

Digital distribution is only going to evolve and get better, whereas physical distribution has little room for improvement anymore. But even as it currently is, the advantages of digital over physical clearly outweigh the advantages of physical over digital.

physical