Actually something similar to this has been going on for some time. I’ve heard of a number of theaters that have been retrofitted to play movies delivered on a high-definition dual-layer DVD. (More like a VCD than what is now referred to as the defunct HD-DVD format.

This worked out well but what was lacking was something you referred to in your article, copy protection. A neighbor of mine had a copy of Star-wars Episode III on DVD that I presume he got from a similar source, as the quality was unbelievable.

As for password protection, the easiest way to protect against copying would be to link the key to the theater, so that if a license key got out the movie industry would know exactly where it came from.