If you click on this picture, which is a screencap taken while watching the Lost episode at full-screen, you will be taken to the full-sized copy of the image, so that you can really get a feel for the artifacts that start showing up as you try to watch these shows on anything larger than an iPod's screen. There is quite a bit of fuzziness and the cigarette that Locke is currently toking looks bent in the still (even though it is straight, and looks so during replay). Also, on shows like Lost where many of the scenes are so dark that they have an almost chiaroscuro effect, there will be multiple block artifacts in particularly dark scenes, when watching the video at larger than its default size. At regular size and even in the little window embedded in iTunes, it looks crystal clear, with no noticeable or distracting artifacts even in fast moving scenes with lots of action. At double normal size, you will start seeing a few artifacts, comparable to the compression artifacts you'll see when watching shows recorded on popular PVRs like TiVo and ReplayTV. Full-screen is much more like watching a VHS tape. Actually, it's more like watching an old VHS tape that has been watched one too many times.
Overall, however, I think $1.99 pre episode is a steal. It is watch-able. It's small and portable. The episode weighs in at 198MBs. The DRM baked into the file prevents you from converting it to other formats for watching on something like your PSP ( I already tried; no luck), but it doesn't prevent you from opening the file in other media-players like QuickTime (where the TV buffs among you can step frame-by-frame through the episode looking for clues to Lost's mysteries).
You cannot burn the files to a set-top viewable DVD, but you can make copies on your system, and it looks like you can burn copies as back up to removable media, just like any other data file. I think not allowing the video to be burned to a viewable DVD has less to do with restrictions put in place by the television industry and more to do with the big pain in the butt that re-encoding all these files to DVD video would entail. I mean it would be several hours of compressing and the resulting DVD would be low-quality. Also, as is evidenced by this post, the DRM doesn't prevent you from taking screencaps of what's going on, which is great for bloggers, film-students, and TV fans. Want a Desktop picture of your favorite scene from Desperate Housewives? It's as simple as Command+Shift+3, then set as Desktop picture.
I've heard a lot of criticism about this already from people saying, "Who would want to spend $1.99 on the show? I have TiVo/ReplayTV/bittorrent!" If you are happy with those solutions, then good, but I think $1.99 is a good deal. I mean, torrented TV shows can be hard to find at times and they often have things like the local TV stations insignia emblazoned along the bottom of the screen or the latest thunderstorm warning. Also, they are usually a bit larger than 198MBs and recompressing them can take time. This is the same difference with PVRs. Sure, I can use mReplay to jump into my networked ReplayTV and grab my shows, but they are in bulky muxed MPEG2 files that take quite a bit of processing to recompress to a manageable size and to remove the commercials. All that work and hassle and saved hard-drive space sounds like it is worth $1.99 to me. Although, I do hope that someone either figures out a way to strip the DRM so I can put these files on my PSP or that Apple and Sony strike a deal. Which of those do you think is more likely? Yeah, me too.
In conclusion, the $1.99 per episode is good for what it is, and it is even good enough to the point where I am actually considering buying the first season of Lost on the iTMS for $34.99 rather than grabbing it on DVD for $10 to $15 more.
As a side note, if you are a Lost fan, make sure you check out this week's podcast commentary on the show. Think; you can download the new episode later today in the iTMS. Open the file in Quicktime. Start playing the video and mute it, while listening to Ryan's commentary on the episode. That's nice podcasting sweetness.
Update: Here's a full-screen screen cap of Pixar's Gerl's Game for comparison. Also, our sibling blog, HD Beat wants to know what you would pay for HDTV download.