If you're happy with the picture from the xbox, then it would make sense to stick with it. I still believe in system matching, so if you have a top-of-the-range TV then a higher quality DVD player will be more worthwhile. Not all DVD's are produced that well, so some may look better on smaller sets and cheaper equipment, rather than being shown on an enormous screen. If you're interested, some good DVD's for examining picture quality on a big screen are Star Wars: Empire or Return of the Jedi (region 1). These are considered to have the highest possible video quality for DVD.
It's probably going to be some time before the new high definition formats become established, so you can probably put off getting a blu-ray/HD-DVD player.
