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These days you can convert DVD's to around 700MB files with almost no visible quality loss (personally I watch via streaming to Xbox 360). By "no visible quality loss", I mean I might notice some compression, but a regular person like my wife could never tell the difference.
Man, I was doing that like ~10 years ago. :D
It does depend on the output device of course (TV), but I still say it's too small a device. I'll still stick with DVD. And if you really want the high quality, well, let's just say that the stick is in the region of 21GB too small. :p
But hey, I do see it as a good thing overall, at least this is a first step away from optical media, well, you all know what I mean retail wise. The first person that mentions betamax or vhs gets their toys broken.