This goes beyond the crummy seatback displays--no matter how good they are, they're still crummy compared to all other visual displays we use routinely. Yes, you can buy a movie or watch in-flight programming, but it's not the same as having a large library to draw on (not dozens but thousands of films and TV shows), and--as Aircell describes it--being able to take the content with you.
Computerworld reports the service will be launched in 2010 with Windows support only, and films will cost $2 to $4. One expects only SD quality to keep the file size low. Aircell told me a while ago that it had overengineered airplane wireless LAN for essentially this kind of purpose: robust delivery of content.
At the highest possible 802.11n rates, a single user on an access point could download a 1 GB movie in just over a minute. In practice, it's likely to be several minutes, but nearly all movie purchase systems start playing with only the first few megabytes of content download. (The start of most movies are highly compressible title sequences or credits, I was told by a delivery firm once.)
I don't know how such video delivery systems compete with existing in-flight entertainment system contracts. Not all planes that will have Wi-Fi have any or robust in-flight entertainment. Alaska Airlines, which has committed to Row 44, has notably eschewed audio and video content to keep planes cheaper to buy and maintain.
But Delta, Virgin America, United, and others have systems in place, and I wonder if they can simply shunt sales from one medium to another without having to renegotiate vendor deals.
In any case, video purchases over an in-plane network increases the value of that network beyond the pure Internet revenue.
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