What is the quality difference between Apple TV HD downloaded content and Blu-ray disks say on a PS3?

In full resolution, Blu-ray has greater picture information than what AppleTV is presently capable of, the latter tops at 720p/1080iHD, while BD tops at 1080p.

In addition, the increased storage capacity of BD makes it possible to include various sound formats, including full-resolution multi-channel audio. AppleTV offers 5.1 channel Dolby-Digital, but not full-resolution audio.

However,  in order to draw full advantage of the BD higher resolution, you either need a very large flatscreen, or a Full-HD projector. By very large flatscreen I mean 65" plus. Many studies have shown that people have difficulties discerning between 720p and 1080p on flatscreens under 65".

The movie studios don't always include the best resolution versions of their audio with BD releases, so you should watch for that if you want to go with Blu-ray.

AppleTV will come in Full-HD according to strong rumors/indications. 

soundproof; and how is 720p compared to 1080i? I know it has been discussed before but i never made much sense out of the debate back then.....720p/1080p seems to be pretty straight forward

It depends upon the quality of the video processing. Theoretically, progressive scan should result in a more stable image, as this mode creates the frames one-by-one, where interlaced scan (i) creates the frames in half-resolution segments. It used to be you could really tell the difference, but with newer processors it's not as noticeable. Sometimes, with images with a lot of fine detail, interlaced scanning could create a wobble between each iteration of the half-frame, you saw the details shifting slightly. But new processors have fixed this.

I would say that 720p/1080i are interchangeable, in spite of being two different image processing modes. On my AppleTV I use 1080iHD.