Ok, I agree that higher quality would be brilliant, but it is physically not possible, many of the points I've read on here are not going to happen ever because it is not what Apple is aiming to do.
The small resolution is due to the fact that internet speeds are not up to the task of downloading HD video, sure 480i would be acceptable, but the file size would be huge and it would take hours and hours to download.
$9.99 is I think a good deal for the movie, you're paying for convenience. Tagged movies, on your hard drive, also on your iPod, at the click of a button. This is the point of iTunes, convenience. It's also digital media, Apple would never send you a copy of the HD-DVD in the post along with your order, because Apple does not want you to have hard copies, it's all about the digital. CD's should cease to exist, it'll all become digital (should the quality be increased to lossless).
You guys do not represent the majority of the users to iTunes, you're perfectionists, of course, and high quality is essential, however to the average user who prefers convenience to quality, this would be a brilliant idea. I've purchased several of the TV Shows off iTunes and I have to say that the compression is quite incredible, H.264 is a godsend, for a 320x240 file size it looks quite amazing, and of course the files are designed to be viewed on the iPod, and on there they are perfect quality, couldn't be much better.
I have faith that when the internet speed increases and hard drive size increases for the iPod and laptops that Apple will upgrade the quality of the videos (they'd have to, music is easier as many people don't notice the sound difference, but with video it is far easier to see the difference) for free to those who have previously bought them, unless of course the prices increase which I cannot imagine happening.