I remember Betamax. My family used to use it prior to VHS winning the last format war. Nothing wrong with it. It just wasn’t popular.
I think Blue-ray or HD-DVD will catch on eventually even if the casual viewer doesn’t notice. I was perfectly happy with VHS, but DVD lets me get a whole season of a TV series on a few discs, taking up much less space and costing me significantly less to buy. Blu-Ray/HD-DVD stores even more information, so that same TV series would take even less space. Maybe we’ll have boxed sets containing several seasons of a TV series instead of just one.
Space saving alone might not be a great motivater, but space saving, better quality, and affordability (when that happens) will make it more appealing. Regardless of whether or not people will repurchase existing DVD collections, I don’t think we’re going to see a phenomenon where nobody switches over to the new format (whichever becomes the standard). It just may be a slower transition this time. Maybe people will only buy things they don’t already have. A casual buyer might not want to upgrade right away, but they probably will once the technology becomes cheap enough and make the advantages of the new format affordable.
If Blu-Ray and HD-DVD are still fighting it out by the time the PS3 drops a couple hundred bucks (or more :P) I’ll probably end up going with Blu-Ray just because the game system has it. Which is presumably what Sony is hoping for; that whoever buys a PS3 will use the Blu-Ray format because they already have a player for it.