I found a pretty thorough comparison between an iTunes 1080p file and a Blu-Ray here; this quote from the article sums it nicely:

ars technica said:

I was surprised to see how close the iTunes 1080p download comes to Blu-ray, considering that it's only a fraction of the file size. And let's be honest: there are lots of Blu-ray titles that look much worse than this iTunes download. But despite an impressive effort by Apple, Blu-ray still reigns king when it comes to image quality. And unlike iTunes titles, BRDs can have uncompressed multi-channel audio, multiple audio language options, and special features. Am I being greedy in wanting both good-looking downloads for convenience, as well as buy-once-play-anywhere Blu-ray discs of my all-time favorite movies?

It appears as though Apple has done an impressive job with their compression algorithms, but when comparing a 25-50 GB BD with a 4 GB H.264 file, the BD will be better. That being said, there are factors other than pure image quality to consider when deciding on a movie library collection system, such as convenience and watch-anywhere-ness.