I currently stream FLAC audio to my AVR and occasionally use high bitrate MP3 (320kbit). Haven't found anyone who can tell the difference between either of those and the actual CD playing and the digital bitstream hitting the AVR over HDMI. I only keep the DVD/BluRay player around for those (rare) times when someone brings a movie or music that I don't already have on my media server. I could never go back to using coasters again.

For movies, I just rip everything into an MKV container and use H.264 at a high bitrate (I leave the audio track alone). At 1080p resolution on my 42" display, I can't see any visible difference between that and a BluRay title playing from the BluRay transport.

Best,