There are 3 separate issues here.
First, the monitor quality and capability:
If you have 1920x1080 resolution monitor that can display 1080p (progressive scan), then ATV will be significantly inferior than BRD or HD/DVD player sending 1080p signal natively to full HD monitor. If your monitor is less than that (say 1366x768 or 1280x720 and can handle only 1080i (interlace) or 720p), probably not all that much different than ATV displaying at 720p (which is 1280x720). The only thing is the amount of bitrate (data per/second) that ATV content provides versus BRD or HD/DVD content.
Second, all BRD and HD/DVD players "upscales" 480i DVD (Stand Def) content to 1080i/p, which can be quite good. I've not been impressed with ATV's ability to upscale 640x480 content (iTune SD content) to large monitors. Also, SD DVDs are actually encoded at over 800x480 for widescreen content these days and bitrate is much higher than 1500 for iTune movies.
Third issue:
The audio on ATV HD content is 5.1 whereas DolbyHD and DTS equivalent are 7.1 - which if you have setup your room with 7.1 system (like I have), 5.1 is a bit of a disappointment. Further, SD DVD from iTune store is still DD2.0, and while most receivers can handle that into DD-II/IIx, it is simulated and not discrete sound output. SD DVDs have 5.1, 6.1 and 7.1 depending on content/movie.
So the long answer to being BRD or HD/DVD player alternative is it depends. One must tradeoff the benefit of a dedicated player in addition to ATV (or MacMini for that matter).
Certainly cannot debate about the convenience, if one has a decent broadband connection and n/g router setup.