It depends on your viewing habits.
Blu-Ray has the absolute best picture quality. But it also has some downsides:
- Buying Blu-Ray discs can be expensive, especially for new releases. $20 and up.
- At present, the "back catalog" available on Blu-Ray is considerably smaller than that of other formats.
- In practice, you will find your viewing options considerably more limited with Blu-Ray
This last item is worth thinking about. Even if you subscribe to a top-tier Netflix plan, you are only going to have one or two movie titles to look at each evening. With an AppleTV and a Netflix streaming account, you'll have a choice of literally thousands.
There is the issue of storage. Personally, I think that the days when we consumers keep a shelf full of discs (CDs, DVDs, VHS tapes, or Blu-Ray discs) are coming to an end. More and more content is available online, in the cloud, or on our personal media servers.
Lastly, an AppleTV can do so much MORE than a Blu-Ray player. You can watch YouTube on your biggest screen. You can hook the AppleTV to a stereo or A/V receiver and stream your entire music collection over good speakers. You can view your personal photo stream. You can wirelessly "beam" music and video from your iPhone or iPod to your TV.
Blu-Ray is very nice. But IMHO the video is, at best, only marginally superior to streaming 720. And at the end of the day, Blu-Ray is a one-trick pony.