Be sure to check this chart: http://hd.engadget.com/2006/12/09/1080p-charted-viewing-dist... and compare that to the viewing set up you had.

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.