As other people have stated Bill Gates has said some stupid stuff before but i think he is onto something with this.
I think it depends on three factors though:
Bandwidth - this will become less of a problem. In the Uk at least ADSL+2 is being rolled out with a 24Mb connection. At max speed (fingers crossed) your average DVD-9 is downloaded in about an hour.
Network/DRM: Home wireless is ok at the moment speeds are increasinga nd it is easy to set up. But once i have my legally downloaded movie/game album i would like to be able to stream it to my tv/hifi/console without and copy protection crap
Storage: this is where it falls down, hard drives are getting bigger but they are still susceptible to crashes and corruption etc. If your harddrive "goes boom" thats your whole collection gone. Even though CD/DVD isnt invincible if one gets damaged it can be replaced, it would be independent of your collection of physcial disc media (unless a meteor fell on your dvd cabinet)