@Zombie
It looks like there are pro's and cons.
At the time of TPM's release there was alot of press regarding the quality of digital projections as compared to film.
This article from July 3rd 1999 says this:
''I saw it(TPM) the old-fashioned way(on film), and this(digital projection) just blows it away,'' said Mr. Rybacki, who is a video technician from Norwood, N.J.
<SNIP>
Gordon Radley, the president of Lucasfilm Ltd., said the decision to unveil digital projection to the public came after Mr. Lucas decided the digital projectors were as good as existing film projectors in many ways -- and far superior in others. At a side-by-side screening of film and digital versions of ''The Phantom Menace'' for movie business executives and journalists in Los Angeles in mid-June, he said, half of the audience could not guess which was which.
After having watched a digital projection of TPM this fan said:
(7/16/99)
The DLP image was bright, and the colors were very rich. There were no reel-change punches and splices, and there was no projector flutter. It looked damn, damn fine. Damn.
There are problems to overcome, though. Even from the middle of the theater, you could see the pixels. Pixels showed up with lettering and titles and credits, and the starfields twinkled slightly like they do on laserdisc. There were strange anomalies in still moments where what looked like waves of slight color variation swept over solid areas. I would say if the resolution can be doubled, or maybe even improved by half, the picture will look extremely sharp.
http://www.reviewsontheside.com/reviews/star_wars_episode_i.html