Uhm, yes, they do. This is precisely why laserdisc remained a niche product, versus the inferior picture of VHS. This is also why Netflix is such a booming business.
"If the average consumer sees no reason to upgrade, they won't get it, and it will die right there."
You are presuming they won't. Have you seen the numbers for home theater sales for the past 5 years, or projected sales for the next 5. I mean, who really needs 5.1, right? Most people don't even have their systems set up correctly.
"And where are you getting all this that HD-DVD will be cheap? It will need an entirely new player, it uses a different codec, etc. "
Only Blue-Ray requires a new player. The other standard is backwards-compatible. Of course, there's always Joe Kane's idea of adding the HD information to the already-SD info of a standard DVD. Old players play the 480P, and newer players could read the 720/1080 info. Best of both worlds.
"And where are you getting all this that HD-DVD will be cheap?"
Most DVD players used to cost several thousand dollars. Now you can get them for 50 bucks at the local drug store. Do you get out much?