I'm not talking about watching a 1/3 of a movie...neither is Netflix. Watching a full, non-stop 1.5+ hour movie on a 4" diagonal screen over a wireless internet connection (when you have the connection) is not going to appeal to the masses ...
I'm not necessarily disagreeing with you, since I don't really see the appeal on these tiny screens either - but I would like to point out that Netflix offers a lot of TV shows (especially older ones) for streaming. It's not just about movies. It's just one data point, but we certainly watch more streamed TV shows than streamed movies on our Tivo (via Netflix' streaming service).