I have both formats.
Toshiba HD A1, and the PS3.
I find that both have equal picture quality, but the HD DVD has better audio. And I'm sure you guys know how much I love the audio on my HT set up
The main reason the audio is better on the HD DVD, is the option for the 5.1 analog outputs. The Toshiba HD A1 separates all of the channels inside the player. It has 6 analog outputs on the back of the player, and I feed those directly into my processor, then they stay separated to the amp, then to each speaker. Basically, they are treated as separate channels from the HD A1 all the way through. So, as you can imagine, the channel separation is amazing
The Blu Ray player either has HDMI or optical. Not that either of those are bad, but I prefer the separate channels. If I ever upgrade my processor to have HDMI inputs, then the sound quality will probably be better with the Blu Ray than what it is at the moment. But I'm not paying $2-$5k on a new processor just to have better audio on a format that may not last.
So if I have a choice, I'll pick HD DVD over Blu Ray. But there are some movies that are on Blu Ray only, and I wanted a player for them.