I have ST:TOS downloaded in SD with XviD, that was before the blu ray release, and I am not planning to redownload it. I probably will redownload TNG and DS9 because I have those in the 175MB format (lower quality than 350MB of course) when I decide to record them to tape (I am in the process of slowly copying my DVD-Rs to LTO tape).
$700 is a lot of money, especially if you are going to watch mostly cable TV which is analog and SD for now (there are some HD channels, but for those you need DVB-C receiver with HD support (very expensive) and a decoder card, while you can split the analog signal to however many TVs you want, which we have 4 not counting my VCRs, though I now use a digital receiver with my VCRs, I can see the channels I want even without the card, but in SD).
Yes, HD TV shows are in h.264, so is anime (though sometimes even the SD version of anime is in h264), but SD TV shows are still XviD/avi. The release groups probably know that they can use h264 for DVD rips, but choose not to, because XviD/avi is more common.
Just like audio codecs - ogg and aac may be better, but you can be sure that mp3 will be supported by almost all players (portable and not). So, most of the music is available in mp3 format, because all of the players play it, and all of the players play it because it is so common. When you rip the CD for your own use in a portable player, you can choose whatever codec your player supports, be it ogg, aac or even flac, but if you wanted to release that rip to the internet, you will probably have to choose mp3 because it is more widely supported and transcoding from one lossy codec to another degrades the quality, be it audio or video.
Xvid video with the same quality takes more space than h264 video, but I don't think that people would run to the stores to buy h264 compatible players just so they can download 300MB instead of 350MB. However, I think that xvid will be dropped only when h264 compatible players become as common as divx dvd players are now. Remember - SD TV shows still get released so you can fit 1-2 episodes on a CD-R (350 or 700MB, but usually not 800MB for example) and DVD rips of moves are release in 1 or 2 CD format, usually 1-2 files 700MB each, though now DVDR drives and discs cost about the same as CDR drives and discs.