The DD audio will generally be inferior to what you get even on a SD DVD. The video quality is perfectly capable of equaling Blu-Ray even in realtime if Dish wanted. Satellite and just like Blu-Ray and HD(DVD and -VMD) is capable of using AVC/H.264/MPEG4. A single Ku band transponder can transmit from 36Mbps to 72Mbps. That is for real time. Dish's OnDemand queues up onto the hard drive of a DVR, so the transmission limitation doesn't apply. A SATA (or even an IDE) hard drive will pretty much blow away an optical disc in terms of speed. Now, currently Dish isn't putting the bitrate up there necessary to compete. It can easily compete with AppleTV, Xbox360 and any of the download services in terms of PQ. However, most people with larger displays will notice the difference.
Dish isn't targeting the enthusiast that has a nice high end HDMI receiver and 3 chip DLP projector with a 110" screen. They're targeting Joe6Pack with his uncalibrated 42" Vizio and his Bose 3*2*1 setup. For him, the 1080p HD VOD is on par with Blu in terms of visual quality and a lot cheaper. (VOD is more convenient, too.)