Our Apple TV gets a huge amount of use for both content-purchased-from-iTunes as well as Netflix.
We still buy DVDs, but less and less. The iTunes stuff is so much easier – no loading the disc, sitting through the FBI warning (or, in the worst case, needing to skip trailers for other shows). And then navigating the sometimes annoying menu structure while the theme sing plays in an endless loop.
And did I mention the occasionally spoiler-ish nature of some of the images they use in menus and such?
Just navigate to the show on iTunes and hit play. Ahhhh.
I have zero interest in anything that involves commercials at this point, so Hulu is right out. (Once you get used to a zero-commercial life, it’s jarring to go back!)
From iTunes, most stuff is $1.99 for SD and $2.99 for HD. If you buy season passes, this can be reduced a little, or for some shows in some cases by quite a bit.
I’ll admit I tend to trade off the concerns of DRM for the utter convenience of digital media. No swapping discs in the DVD player, no waiting through the FBI warnings etc.
If the price is even close I’ll go with iTunes over DVDs.
One other advantage of the digital versions is that I’m ready to go should I want to watch shows on an iPad while traveling.
The ability to lend DVDs was a big issue for me for a while, but I find that I lend them out less and less, so it’s become a smaller factor. And after moving to an apartment, having less physical stuff is attractive as well. Unbelievable how many boxes of DVDs we moved! And are having to find room for.
Muddlin' Through 
My problem is that even though I watch seasons on iTunes (or Amazon), my obsessiveness tells me I MUST own the discs when they are finally available too. 😦 You’re such a major Apple user that I’m not sure you can give an unbiased answer… but you recommend the Apple TV over, say, Roku, or just a nice Blu-Ray player with streaming capability?
Oh believe me, I share that acquisitive obsession. I have a crazy amount of DVDs.
it’s true I’m certainly an Apple fan, but I try to stay as unbiased as possible. If you don’t plan to buy from iTunes, then an AppleTV is probably not the best choice, although it does a very nice job with Netflix, HuluPlus, MLB, etc.
One of my main uses of the iTunes store and the AppleTV is to watch new episodes of current shows. Mainly the ones that we either just can’t wait to see, or the ones that we fear spoilers if we delay seeing them until the DVDs are out. If you are happy watching shows well after the latest season finishes, then DVDs remain a pretty reasonable choice IMHO.