I agree. For most things I try to buy cheap used copies from Amazon. A very good quality CD can be had for $3-$6 (plus shipping) and I get to rip it at my preferred bit rate. I'll still buy new albums from bands I really like brand new though.

Like others have said, the physical copy is a backup. Also, I bought six of those wooden CD boxes from IKEA ("Mackis") and loads of cheap plastic sleeves from someplace online for pennies on the dollar, and then spent a few days breaking down the jewel cases and putting all the artwork and the disc into the sleeves. My collection isn't quite as browse-able as it was before, but the space savings have been worth it.

As an aside, I wonder if the opening of the new movie service will lead to an increase in the default bit rate of the music sold on the iTMS. I assume 128 was chosen partially for download speed concerns and we know that movies were delayed partially until more people had broadband connections. Does the green light for movie downloads signal a better chance for better bit rates for music?