IMHO there's a big difference in video quality between DVD and BluRay assuming you have a full 1080p display. I actually just watched part of LOTR on DVD yesterday and realised how much that difference is as I have been watching BR exclusively for the past several months. Of course a good upscaling DVD player will help, but it can't make it equal to BR.
On the audio front I find the difference is there, but not as obvious as with the video. A good DolbyDigital or DTS track sounds pretty close to their HD audio counterpart. At least from the discs I have, I can tell the difference if I switch between the tracks, but I don't sit down and immediately notice that it's not using the HD audio track.
