I liked the old adverts that tried to show you how sharp DVDs were...on VHS.
It may just be me, but it appears that they are not much sharper than the DVDs (unlike the DVD vs VHS change) and most of it is marketing.
It is very, very, very easy to put yourself in a situation where 1080 is useless. The cutoff for where your 1080 40" TV might as well be a 720 TV is 7 to 8 feet; further away than that and you can't tell the difference between 1080 and 720. At about 12 feet you've lost HD entirely. Many people have setups that fail these criteria. And this is a continuum, not a sharp cutoff, so if you're on the far side you may be able to tell a difference but not think it's worth it.
Now, all that said, well-upsampled DVDs are much closer to BluRay than people selling BluRay would like to admit. It isn't the same, but I couldn't call it "night and day", certainly.
As but one example, the parent's example transition at 7 to 8 feet would occur around 10 feet for me. Above-average vision is great on paper but translates into more expensive displays positioned farther away. :(
Hi-Def content has a higher resolution, but if you have average vision with an average size TV and you sit the average distance from the screen then you can't possibly see any difference.
When you're in the TV shop where they've carefully arranged the TVs so you can't stand more than a few feet back then there will be obvious differences.
Here's a nice graph to check whether you should be able to see a difference:
http://s3.carltonbale.com/resolution_chart.html
One interesting wrinkle is that if you're at the right distance for HD, then you're too close for any SD content you have and vice versa so unless you only watch one resolution then you either put up with the SD or the HD looking worse than it should.