As someone with four younger brothers, I know why my folks buy VHS rather than DVD: durability. The primary problem with DVDs is the fragility of the medium. An 6-year-old can manage a VHS change fairly proficiently, but, given that dropping a DVD on a hard surface can irreparably damage it, wouldn't likely be allowed near DVDs.
Additionally, children are not nearly as likely to be very critical of signal quality issues. The parents of said children then would be less likely to purchase DVDs over VHS, given the elimination of this DVD advantage, and the difference in retail price.
The emergence of affordable media without the durability downside will displace DVD and VHS soon enough, but DVDs will never succeed in eliminating their magnetic media competition. In addition to the durability issue, memory cards are easily recordable and reusable (a trait in which they surpass VHS's diminishing capabilities in this area).
Until those prices come down a bit more, look for WalMart and other family-savvy retailers to keep people on both sides of the fence happy with available substitutes.
