That is because there are plenty of acceptable alternatives. I don't know why people don't understand this. You can still get blu-ray quality movies on your computer.
No you can't. That's the whole point. The 720P that you typically download from iTunes (3.5~4.5Mb/s) is typically not in the same league as Blu-ray, which has a minimal bit rate of 20Mb/s and a typical rate that is much higher. For 720P, quality would be okayish if they offered higher bitrates, but they don't. They do charge premium prices, but don't offer premium quality.
Most people don't care about the quality when they watch a film on their computer either.
Okay, so let's go back to playing VHS tapes on a crappy NTSC telly then? If quality doesn't matter, then why even bother with DVDs?
Now please realize that "watching a film on their computer" implies a desktop PC where you work all day in Excel and between breaks you watch a crappy low-rez movie in a window. I'm sorry to break it to you, but that's a bit old fashioned idea. These days computers are first class citizens in the digital living room, hooked up to expensive flatscreens and surround systems. Look up the word HTPC, you might learn something new.
For these people, quality *does* matter. I would love to use a Mac Mini for such a setup, but Apple doesn't let me. Oh well, I still love my Mac but then I just get myself a PS3 for the media center setup, or maybe even a Wintel PC.
Most people don't even realize that blu-ray is a significant jump in quality over DVD, so it hardly matters.
Believe me, they notice when they see it. I tried to impress my mom years ago with DVD, but she wasn't really impressed. I tried again with 720P iTunes material and while she put on a smile for me she still wasn't impressed. Then I showed her Blu-ray and she said: "WOW! That really does look good, almost as if I'm watching through a window".
Above all it are the "tech" guys like you who keep nagging about the fact they don't need it, and that it only has so many pixels, and so many more bits and that the human eye is only able to distinguish so much detail... bla bla bla... But the non-tech people don't care about all that. They look at the screen and it either looks good or it doesn't. Blu-ray looks good, it's as simple as that.