Aww forget the high quality compression. Just store the movie on the disk using a series of .raw images. That's what, about 10MB per frame? Let's store it at 60fps. That's about 108GB per 3 hour movie? Now we'll put a lossless 96/24 7.1 audio track on there.
I suppose this is accomplishable with Blu-Ray if they can deliver on their claim of being able to have disks with more than two layers. A while ago I heard of actually having up to 8 layers. Of course, current Blu-Ray players may not be capable of reading such disks. In which case I suppose we can span this across three disks.
As for resolution, if you're not noticing a difference between 854x480 and 720x1280, either your screen isn't big enough, or you're sitting 2+ screen widths away.
Here's a couple test pictures which compare 1920x1080, 1280x720, and 854x480. If you do not have PhotoShop, or a program capable of viewing the different layers in an image, view the first picture. If you do have some form of Photoshop or a program which can view layers, view the second image.
For this first one, ensure that your browser is not set to automatically resize the image. If it is, a small box should appear in the lower right corner of the picture allowing you to view the image at full size. This first image is 1920x3240, with 854x480 on top, 1920x1080 in the middle, and 1280x720 on the bottom. The 480 and 720 versions were scaled up to 1920x1080 with no filtering applied. So at a size of 100%, they should appear pixelated in comparison to the full resolution image in the center.1080 Column
This second image is a photoshop file. The background layer is the 1920x1080 image, and the other two layers carry the name of the resolution they represent. To view the difference directly, simply turn each layer on and off. And make sure the image size is 100%.1080 stacked
As for how far you should sit from your monitor, that's up to you. Depends on what resolution your monitor is set at, and how far you sit from your home theater screen. I'll do some of the math for you.
Resolution / / Monitor Widths / / equivalent 16x9 Screen Widths
800x600 / / 2.4 / / 1
800x600 / / 3.6 / / 1.5
800x600 / / 4.8 / / 2
1024x768 / / 1.9 / / 1
1024x768 / / 2.8 / / 1.5
1024x768 / / 3.8 / / 2
1280x720/960/1024 / / 1.5 / / 1
1280x720/960/1024 / / 2.25 / / 1.5
1280x720/960/1024 / / 3 / / 2
1600x1200 / / 1.2 / / 1
1600x1200 / / 1.8 / / 1.5
1600x1200 / / 2.4 / / 2
1920x1080 / / Duh
2048x1536 / / .93 / / 1
2048x1536 / / 1.4 / / 1.5
2048x1536 / / 1.86 / / 2
If you have a CRT monitor, I don't recommend going to the highest supported resolution to view these images as many monitors support ultra high resolutions, but suffer a loss of detail at these resolutions. For example, my monitor supports 1600x1200, but is blurry. I find the best and most detailed resolution to be 1280x920.
To test your resolution to see if you are getting full detail, view this picture:Dots
This image has two 1-pixel dots placed one pixel apart. If you cannot discern the space between them, you are not getting full detail. On an LCD monitor they should be crystal clear. If they are not, you probably don't have your desktop resolution set to your monitor's native resolution.
So, all this should help you to determine which resolution is right for you. If you're like me, and sit about 1 screen width away, 1080 is the way to ultimately go. If George Lucas is your most high guru of visual presentation (1.5 screen widths), then 720 should be fine. If you have a phobia of any sort of screen and must be further away than 2.5screen widths, or you have an abject fear of your screen being damaged, therefore you have "Police Line" tape not allowing anybody closer than 2.5 screen widths, then you can get away with 480.