Not to be mean but your friends might be stupid...
Netflix has a 4.99 a month plan UNLIMTED RENTALS keep for as long as you want.
Um, you might want to check your facts before you start calling people stupid. Their $4.99 plan is only up to two rentals a month. 1 at a time unlimited is $8.99.
Hmm. Well, if iTunes indeed has a great catalogue of movies available for rental, then that will make sense. However, right now, looking at the ITMS movies section is about as depressing as looking at the handful of titles available via Redbox.
Looking right now doesn't tell you much since it looks like a number of new studios will be joining when they release this - this very thread mentions Warner, Paramount, Disney, Fox, Lions Gate for day one. And while it will start small, it will continue to grow. If it doesn't start with a better selection than redbox right away, it probably will before long.
You can get VOD or PayPerView with pretty much any subscription television service (ie, cable or satellite). You are correct that you need one of these two to get VOD, but that condition excludes, what, 0.5% of the population? Less?
You seriously think 99.5 percent or more of the population has either cable or dish? Really? I'd love to see a stat backing that claim up.
As for an iPod: I'll go out on a limb here and say that approximately no one in their right mind would see an iPod hooked up to their TV as a route to convenient online video delivery. No streaming (so you do have to wait for the whole thing to download before watching), compression artifacts, poor control scheme, etc.
Call me crazy, but I do it all the time. Sure, it's not the most convenient, but it's easy enough for me. And compression artifacts aren't visibly worse than DVD watching on a conventional TV. Have you seen it? It works surprisingly well.
Primarily, people spend $$$ every month on cable or satellite so that they can watch television series when they are aired.
Sure. But for those of us who don't, VOD simply isn't an option.