Some friends have given this service a whirl and are finding that the servers are apparently pretty well swamped and it's taking horrendous amounts of time to download things currently.
Personally, I like the idea, and perhaps even the implementation, but think that the 20 GB harddrive is a very limiting factor (for stuff you'd be "buying" to own, rather than renting to watch one time), and the time to download an item may make it non-economical when compared to renting an HD-DVD movie, or Blu-Ray disc from say Netflix or Blockbuster (when they have them).
For people with long drives to local rental outlets, or in areas not close to the Blockbuster or Netflix by mail servicing centers, this might not be a bad deal, but it's up against competition such as Cable/FiOS's In-Demand, or DirecTV's pay-per-views, or Dish network's similar services.
If Microsoft gets the download time down, puts out a much larger harddrive for the 360, and focuses primarily on hi-def content -- along with more "to own" rather than "to rent" titles, then they may get somewhere with all of this. If it remains primarily a rental model then it's a nice possibility that will likely see little actual use once the gee whiz new feature factor wears off.
