The jump between vinyl and CD was also massive, but vinyl was still good enough. what CDs had though over the massive sound quality improvements was the added convenience of playing specific songs, not needing to turn it over, or play on the move in your car/walkman/etc, and added features such as easy skipping, shuffle, ripping, etc.
I would wager that it were those extra features + added convenience (and the cheaper price) which got people to switch to CDs over the massive improvements of sound quality. Blu-Ray had exactly the same features as DVDs (until publishers artificially decided to skip adding extra content on their DVD releases), were exactly as convenient to playing DVDs, but were more expensive. So I think for most people it simply wasn’t worth their time to upgrade from if all they got was to bump their picture quality from good enough to amazing.
At the end of the VHS era (when DVDs had already been available for years) maybe you had a good enough (picture) quality on the first few plays of the tape (which you still had to rewind etc.), but at the same time you could go to your local video rental get a 5 year old DVD that had been played hundreds of times, had the same (or slightly better) picture quality, much better sound quality, no need to rewind, and tons of extra features.
And DVDs have interlacing too. True, they add the ability to not store the repeated fields from a telecine but that's mostly because the lossy codec would otherwise fuck things up even more. And not all movies even make use of this and even more don't use it for 100% of the frames.
And while DVD's don't have analogue artifacts, they do have a VERY BAD lossy codec with noticeable blocking. Add to that that contemporary encoders didn't even use the limited encoding space of that codec very well.
DVDs winning has nothing to do with quality but was all about convenience. Smaller package size. Don't have to be rewinded. Can be pressed for duplication instead of having to run through a long tape.
Much better than 480p youtube these days.
In the eye of the public the quality of DVDs are obviously good enough, and the jump to Blu-Ray is simply not worth the time and effort to make the switch.