I'll answer that with my take in Hulu and Netflix, cause I don't think Amazon has any "magic" over the other two.
It depends on your equipment. My "best" theater is...
Panny DMP BD35
Lenovo IdeaCentre(where I get all my online content...and my rare stored music/video/pictures. It is one of the "purposely tiny meant for streaming" computers)
Onkyo DV-SP504(for SACD/DVD-A...mostly)
Pioneer DV 420V (all DVD playback goes here...mainly because of PAL)
Onkyo TX NR1008
Hitach 50" 1080P plasma
JVC projector
There is "more stuff" in the room, but the rest is irrelevant for the "stream vs dvd"...
I have tried HD downloads...which say they are 1080P. Yeah so? Still looks like crap. At best to my eyes it is 90% of 720P and 85% of 1080P(depends if it was mastered to be 1080P, or came from television and is 720P)
Netflix and Hulu have never looked like DVD's played over the Onkyo or Pioneer DVD players. Never.
But if you read reviews...the 420V was(and still is) one of the best scalers you are going to find that doesn't have an Oppo tag on it. I do have an Oppo, the 970...alas it "only does" 720P.
A caveat I'll throw out though. I use WildBlue's fastest internet and Tmobile 4G with a Jet 2.0. Your mileage may vary if you have faster internet than I do. But using Tmobile, I watched a movie the other night...it only buffered for 2 minutes before starting. Granted, the movie was Forbidden Games(1952).
Sam, thank you very much for the really informative response. I had the thought of purchasing some films via Amazon Instant Video that I don't own in my DVD collection that might not make it onto Blu-ray (or not for awhile, anyway). And I also like the idea of having them stored digitally since I live in a small space. But if they aren't going to be at least DVD quality, then forget it. And it also just occurred to me that the DVDs will be upscaled when played on my Blu-ray player.
I haven't used Amazon, but I find the HD quality of Netflix, Vudu and Hulu to be very good - not as good as blu-ray, but miles ahead of DVD, and superior to most HD cable and satellite. This is via PS3 with a 15mb internet connection, on a 51" plasma screen from a seating distance of 6-7 feet.
The SD stuff is pretty lacking, though. Lots of banding and noticeable compression issues. It's adequate for casual viewing if there's no other option, but I wouldn't purchase anything in SD.