Technically, you're right: true HD is better - but I've found that an anamorphically-encoded DVD rendered through an upconvert engine produces an excellent picture on a reasonably-sized HDTV (42-50 inches). And - as you note, the potential for additional quality is frequently limited by the specifications of the source material. Old film prints, even digitally remastered can look grainy or fuzzy. So, as I said, I don't think HD DVD or Blue-ray is worth it at $500-$999. Now, when you can buy one at WallyWorld for a buck and a quarter (in two years' time), I'll be right there in line!
>produces an excellent picture on a reasonably-sized HDTV (42-50 inches).<
Not everybody wants a large screen tv. I like tv on the small side, because I don't care for the way large screens dominate a room. I have 4 color tvs, not counting the portable Casio, and none of them is larger than 19". Nearly all the time I spend watching is on a receiver dedicated to playback of DVDs and VCDs [I have a large collection of Korean, Hong Kong, Chinese and Japanese movies, many of which have never and will never be released here in Region 1 format].
Not everyone wants to see the individual pores on an actor's face.
The technical advantages are obvious in true HD tv, but I am not sure most people are going to be enthusiastic about replacing their systems at the present prices. For people with extensive movie collections, I doubt they are going to run out and replace all of their present DVDs, either.
There are large numbers of technophobic people in this society who adopted DVD reluctantly, if at all, and if you have ever tried to explain coming changes to such people, you've seen their eyes glaze over.
By the way, the new DVD formats also have DIFFERENT regions than the present DVD regions. I'm interested in television from all over the world, so my 4 DVD players are all region free and convert PAL to NTSC. Regions are an evil marketing scheme. People sneer at VCD format, but it crosses borders so nicely.