Well this is rather unfortunate. It's not bad enough HD-DVD, as a format, has gone to the big Beta-Max in the sky, but the sleeve packaging that Netflix uses to mail out their DVDs are damaging both HD-DVD and Blu-Ray discs during shipping. We've encountered numerous problems with 4 of the 5 HD-DVDs we rented from Netflix and friends of ours had issues with all 5 Blu-Ray discs they've received from Netflix.
The problem is that the information on these discs is much closer to the actual surface of the disc than standard DVDs or CD-ROMS and, therefore, is much more prone to being damaged. The fibrous sleeves that Netflix uses to mail their discs are causing loads of minute scratches in the read-surface of the discs and rendering them inoperable. Our friends with the Blu-Ray player were barely able to get past the opening credits in each of the five movies they rented and while we were able to get much further into the movie, we would often have to skip ahead to get past trouble-spots in the disc.
It's clear to me that Netflix needs to change their shipping packaging to something a bit sturdier, perhaps a plastic hard-back with the circular snap-in piece to keep the discs from sliding back and forth. This will no doubt increase the cost of shipping, but not more than repeatedly sending unplayable movies back and forth through the mail, which is what's going on now.
I'd be interested in hearing from anyone who also uses Netflix for HD-DVD or Blu-Ray and seeing if we've just had really bad luck, or if it's more commonplace than Netflix is letting on. Personally, as much as I love the Netflix service, I can't really recommend them for next-gen formats until they change their packaging.