Arnold Kling with some reality for the video on demand crowd:

But I am skeptical of any study that forecasts a big market for movie video-on-demand. That forecast has been made wrongly for years, and it continues to defy the fact that hard disk space is increasing faster than bandwidth.

I think that the correct answer to the question, "When will video on demand become mainstream?" is "Never."  By the time we have the bandwidth to make it work, we will have hard drives capable of storing all the movies ever made.