I've already upgraded all my iCloud available movies on iTunes to 1080p and they look great for what the file sizes they're at. Just overall happy that we now have 1080p content at the store.
I used to be an extreme AV nitpicker for this stuff but I've recently really warmed up to iTunes over the last year. With iCloud, iPad 3, ATV3, and 1080p content, I'll take a digital only iTunes HD version over a physical blu-ray copy. Those 4 elements really sealed the deal for me. I like freeing up shelf space and keeping things minimal and neatly on a hard drive where it's out of sight, and with iCloud, being able to redownload many of my movies and pretty much all of my TV shows, so whenever Apple upgrades any of your content (adds "extras", adds Dolby Digital 5.1, closed captioning, subtitles, etc..), you can just redownload the higher quality version, not to mention having your content available anywhere and anytime you bring your iOS device as well.
There are other advantages to iTunes video content than just sheer picture and audio quality, but its nice that Apple is getting closer to blu-ray with the former.