Hey, this is a fascinating discussion.
There are some interesting points being raised.
For instance like indietalk I always aim to make a film of a good enough quality on a good enough format to be able to secure a theatrical release. This is mainly because although the real money is in DVD's and global TV sales, the returns in those areas increase exponentially if the film has previously had a theatrical release.
However, being a realist, I also know that even high budget films struggle to get a theatrical release and for an indie, sometimes the cost of that release can destroy the payback from the other sales, causing the film to make a loss.
The trick with any film, is to weight the budget against the lowest reasonable expectation for the film in the market place. You make commercial decisions whilst you are writing and in pre-production. So, for instance, if you have a $200,000 budget, you might chose to invest in 35mm, go for an inexpensive no name cast, but ensure that you pay incredible attention to the quality of your images and the strength of your script. This is what Australian filmmakers have been doing for years. On the other hand, you might chose to cut back to High Def and put your $400,000 into securing a mid-level name actor to work in a commercially safe genre movie. Or finally you might, get your script right, choose Hi-Def and still work with an unknown cast on a high quality, visually challenging project, that you think will play well in certain markets, Europe for instance and not spend all of your $400,000, but go for a larger margin of profit from your lo/no budget film.
There are a lot of factor to bring into play and some of them are answered by asking the question "What kind of filmmaker am I?" A question I ask myself every time I start writing. However, beyond that question is the ever present, how is this project going to work commercially?