You may not notice the difference directly in PQ, but may in features of moves, features of the player (especially network connected ones), and that at some point, new movies will only be released on Blu-ray,
You need to go buy a proper surround receiver. It is what does all the work of decoding the surround from the optical out, to 5.1 channels, processing it with a level control and other adjustments, and amplifying it for the full range speakers. You will need an active sub which has a line in.
You need to buy and install one, or buy and install a DVD player app.
And yes, I said buy, because the DVD decoders that are missing need paid for because of patents and licensing.
You need a DVD-Video. It is more that a file format, but a folder and file structure, plus burnt in a special media format.
You need a DVD authoring software such as Windows Movie Maker, Nero Vision, or iDVD on Mac.
Good apps will be pay.