I watch Blu Rays on my home theater. But if I'm traveling, I can't exactly take a 42" LCD and Blu Ray player on the plane with me, it would be nice to bring a few Blu Rays along and watch them on my laptop, even if it's 2 channel audio and not on an HD screen. I shouldn't have to buy the same movie twice.
It would be nice but do you really want to carry around a Blu-ray player 100% of the time that you only use 5% of the time? This is why I support removing the optical drive in all laptops. How many people use it every day? Are people aware of the amount of real estate it takes up inside your laptop?
The only thing 720p does for iTunes movies is make the compression artifacts more clearer. iTunes "HD" is garbage.
Compression technology is getting better and so is bandwidth. The only way digital downloads will get better is if people start embracing it and that means letting go of old technologies like optical media. iTunes movies is still not profitable for Apple and they won't put any more resources in it until it is.
And a Blu Ray has a bit rate of somewhere between 30 and 50mbps variable, depending on what's going on in the scene. The fact that Blu Ray requires 6-10 times the bandwidth of iTunes should tell you how much better Blu Ray is.
The only reason Blu-ray's bit-rate is so high is because they have the extra space on the disc. It doesn't need to be that high.
Look at the HD-DVD of King Kong, which looks and sounds just as good as any blu-ray. Over 3 hours long with a lot of action and less than 30GB. That was a few years ago and compression technology is only getting better, not worse.