Ars Technica did an extreme close-up analysis of video quality from iTunes 1080p downloads versus the same title on a Blu-ray. The verdict? Blu-ray still takes the title of best-looking HD format, but the iTunes version is very close to Blu-ray quality. It's a dramatic improvement from the old 720p downloads the iTunes Store used to offer, and even though it doesn't quite measure up to the picture quality on a Blu-ray disc, it might be close enough for most people.
Ars correctly points out that Blu-ray discs offer other features that iTunes still doesn't, like special features, commentaries, and uncompressed audio tracks (a big deal for audiophiles with high-end surround sound systems). On the other hand, Blu-ray discs definitely can't match the convenience of iTunes downloads, which can now sync high-def content to all of your devices with a single click.
I finally broke down and ordered an Apple TV following the debut of the more powerful version announced at the iPad event, and after seeing how well iTunes 1080p content stacks up I'm glad I did. Head over to Ars and check out their comparison shots for yourself.