I've taken a two-pronged approach to this kind of functionality. Before I address the Kaleidescape side, I'll begin by summarizing my environment. My setup includes a Windows Media Center PC paired with a Silicon Dust HD Homerun Prime that is also running Plex Media Server. DVR content is stored on a 1TB internal hybrid hard drive. Everything else is stored on a 4TB external hard drive. I have four Roku boxes running Plex, Netflix, Hulu Plus, Amazon Instant Video and Vudu. I also have a couple of PS3s, which I use to access the CableCARD box via DLNA for live TV in other rooms and to access .WTV recordings exposed through Plex.
The closest legitimate equivalent to Kaleidescape is honestly UltraViolet HDX. Yes, I understand that the audio is not lossless, but the overall quality is very, very close to Blu-Ray for MOST content. It is on-demand, easy to use and has a nice interface on a variety of devices. I've been working my way through my collection, taking advantage of the 50% off disc-to-digital offer through Vudu and will soon have about 400 HDX movies. Vudu is accessible from all of the Roku boxes, tablets, computers and game consoles.
For movies that I cannot get through disc-to-digital, I either rip the disc or download a rip of the disc off a torrent (which takes less time). I usually rip to very high quality 720p mkv with DD 5.1 sound, because some of my Roku boxes are not hard-wired and those file and sound formats will direct play on Roku without transcoding. I could just as easily do this in 1080p if my boxes were all hard wired and I had enough drive space to burn. I use Plex with Roku to distribute the movies around my house, with the added perk of Plex working with our phones, tablets, computers and game consoles. It is a highly flexible solution. If I want a flashier interface, I also have the MyMovies plug-in for Windows Media Center.
If you really must have true Blu-Ray quality, you can always set up Windows Media Center with the MyMovies plugin have it control a stack of 400 disc Sony BD changers (assuming you can still find them).
Kaleidescape is just a massively over-priced rip-off. If I wanted perfect rips and could afford to pay for the disc space, I could simply rip all of my Blu-Rays with MakeMKV, which adds no compression whatsoever and use an HTPC for playback.