How can an Xbox Live WMV encoded video which has 720p/1080i and only 6.5 Megabits per second (VBR) compare to an HD DVD, which has the potential to go up to 1080p and 36.55 Megabits per second? It can, and it turns out there's not as much difference between the two as you might think.
By recording and comparing two clips, one HD DVD and one XBL WMV, Brandon Wirtz and Jake Ludington came to the conclusion that there's really no noticible difference between the two if you don't have a 1080p TV that's been correctly calibrated. Other than the fact that Windows Media Encoded files can't display true blacks because it's calibrated for NTSC color space instead of ATSC color space, there ain't that much to report.
In short, unless you're a true videophile that spent hours calibrating your TV, have a 1080p set, and have a theatre-lit room, you probably won't notice the difference.