The HD downloads aren't of the same quality as BD. Just like digital downloads hasn't killed off CDs, they won't kill off BD either. The only thing that will kill off BD, is the next superior physical medium they come up with.
Although an opinion not entirely true. Here is at least one article
here that says otherwise. And has been covered by various network news as well. However, that's another subject and I don't want to de-rail this thread.
BD doesn't enjoy the same market share as DVD. And, people have shown that they aren't interested in 1080p HD quality movies. Therefore, BR has remained a niche market. With major networks provided free access to their shows online and other 3rd party website like Hulu offering 480p IQ people are flocking in groves. Remember, free is still free. The better IQ of those shows being offered (even though it's not 1080p) is like icing on the cake. So far, people don't care that it's not 1080p regardless if they can discern the difference or not.
And, let us reflect over 1 year ago were Toshiba resigned from the HD format war in Feb 2008. The drum roll was that the format war was confusing customers into buying HD movies thus hurting the HD market. Well, it's been over a year now and BR has not made any significant gains on DVD's market share that are either measurable or sustainable that would put any dent in DVD's market share. All they have done was show figures of who's actually buying BR movies or players. Which is like comparing an apple to an orange.
Therefore, with:
-major networks offering their show (in good IQ) online
-Rental agency offering streaming online
-3rd party company's giving you free shows/movies online with higher then average IQ
-cable and satellite companies offering the similar services
-xbox 360 live offering streaming services
-etc
has IMO, put a serious dent in the growth of BR through alternate competition. It was expected that streaming would take off but as you can see other branches of services (be it free or otherwise) have surfaced as well. And IMO, was unexpected.
It may not put any serious dent into DVD. Let not forget that DVD market is hefty to begin with. However, BR doesn't enjoy such a luxury and, are expecting people to pay a significant amount higher on top of that.