Granted I've spent more than I can remember on XBLA, and the first thing that I'm going to do once I have my gaming PC up and running is create a Steam account, but my preference is for physical media. It all comes down to bang for the buck, and while I'm a sucker for the trivial doo-dads that come with pre-orders and over-priced collector's/limited/deluxe editions I'm not really speaking of those here. As of now, Steam charges the same as physical retailers for a new game. When I buy that game from GameStop or Target or Amazon, I get whatever trivial doo-dads it may come with as well as the Right of First Sale. I can trade it in, gift it, re-sell it, use as a coaster, whatever: the game is mine. When I buy digitally, I'm essentially buying a license. Granted, DRM renders physical media the same, but if I'm going to be playing the same price I might as well get a book and a box and the right to re-sell along with it.
The reason buying music digitally works is because it is cheaper. When Mastodon's new album comes out next week, I can fork out $19.99 for it in the store, or $8.99 for it as an MP3 download from Amazon. Until digital distribution services for games start charging less than retail, they will always be a supplement to retail, not a replacement.