Well, think of it this way. It's not like you have to dump your existing DVD collection to adopt HD-DVD or BluRay. Your DVD player isn't going anywhere, and the new decks will be backwards-compatible. There's no reason you can't continue to enjoy your DVD collection while making new purchases of HD material. I certainly won't get rid of my DVDs until they have HD replacements. And I certainly wouldn't worry about HD-DVD/BluRay failing. I'd say there's a very slim chance of that. It also won't be replaced for MANY years. All the studios are currently doing their HD masters in 1080p. They'd have to go back and do the masters again if they wanted to go even higher, not to mention the fact that going higher than 1080p would yield no benefit to 99% of consumers. Only people with 100"+ projection screens would benefit from that.

In your case, and in the case of many others, screen size is what determines your need for HD. Viewing distance also comes into play. I'd say for the majority of users, DVD is more than satisfying at 60" or less. The differences between DVD and HD are less apparent, especially if you haven't been exposed to significant amounts of good HD material. For me, aside from resolution, color accuracy and depth are the most noticeable improvements. If you ever have occasion to see the exact same material in both DVD format and HD (I see this quite often because many of my DVDs are broadcast in HD on HBO and Showtime), the differences are easier to spot. I watched a bit of Matrix Reloaded on HBO in HD a while back, and even the reference-quality image on the DVD couldn't touch the HD version.

Another issue is the ability of the display to resolve everything HD has to offer. Most CRT-based projection TVs are limited to 1080i/540p (or 480p if your TV supports it natively, many don't). A select few support and can actually resolve 720p. The holy grail--for now anyway--is 1080p. It's really only possible on CRT displays with 9" guns and the latest digital displays. As 1080p-capable digital displays filter down to more reasonable price brackets, then you'll see HD in its full glory and the differences will be much more apparent.

I sit about 11' away from my screen. I have a Sharp Z12000 DLP projector, which is 1280x720. I'd like more pixels than that. It looks really good, especially after I calibrated it with a colorimeter (HD looks like film), but I can still make out the pixel structure sometimes. Contrast is about 4000:1, and with the lights out it looks like a giant plasma.