HD-DVDs have mostly been using AVC MPEG-4 IIRC, which is a much more modern and higher quality codec than MPEG-2. Newer releases have been using VC-1 and AVC, I think...but once you get to the decent encodings then it comes down to which one had a better transfer. From what I've read, it looks like HD-DVDs have been getting the edge there, too. I really hope the quality of blu-ray releases keeps improving, though.
Well, either that or die. or have HD-DVD die. or have both die and be replaced by a single format. Format wars SUCK.