Personally, I prefer physical. While not having to mess with so many discs/cartridges is nice, the memory of a console is limited.
On top of that, not everyone has access to internet, so that would be rather impractical for them.
For those who do have internet, that's a lot of downloading. If your internet service is based of off data transfer allowance, you're probably screwed. Not to mention the power required to run those damn consoles. With my equipment, I can easily run the electric bill up by $75.
On the other hand, as the new generations pass, older services become obsolete quickly. The most memory an N64 game can take up is 64MB. That's just over 1% of the 4GB SD card I have for my Wii console. Hell, a PS1 disc with 640MB takes up less than 0.2% of my PS3's 320GB hard drive.
To me, downloadable games should be reserved for short time wasting games and games that are at least 2 generations older, maybe 3.