Depending on how old you are, you may remember the VHS vs. Betamax format wars. Between the two formats, Betamax had far superior picture quality, but VHS eventually won out. Not because it was better, but JVC was more liberal with its licensing, and the tapes met more of the customers needs (i.e.: like longer recording time).
The new HD-DVD vs. Blu-Ray format wars, is just heating up. Personally I am putting my money on HD-DVD, not because its a superior technology to Blu-Ray. HD-DVD will win out because it will have better industry support, and its easier to produce the discs. Although, Blu-Ray has a few technical advantages over HD-DVD, mostly its higher capacity.
Ultimately what will win out is the one that is the most compatible with the existing equipment and media, and best price. When CDs and DVDs were first introduced, they provided such technical advantages over the existing technology at the time that people were willing to update their media collection.
Although, I don't believe HD-DVD vs. Blu-Ray is compelling enough for me to want to replace all my movies with it. If I buy into this technology, I would be willing replaces some of my existing DVDs (for example Star Wars) with HD versions of the movie if the quality was that much better.
For more information on the HD-DVD vs. Blu-Ray, check out the following Wikipedia article. Here is an excerpt: There are many advantages to the fact that HD DVD discs will be the same size as current DVD discs. Backward compatibility will be available with all HD DVD players allowing consumers to only require a single player in their homes to play both HD DVD and DVD discs (also true with Blu-ray). DVD disc replication companies can continue using their current production equipment with only minor alterations when changing over to the format of HD DVD replication. Due to the structure of the single-lens optical head, both red and blue laser diodes can be used in smaller, more compact HD DVD players. Additionally there is a hybrid HD DVD which contains both DVD and HD DVD versions of the same movie on a single disc, providing smoother transition for the studios in terms of publishing the movies.