The audio used on Blu-ray is generally either DTS HD Master Audio or Dolby TrueHD. There are others such as PCM but those are the two main variants.

The sound is better than either Dolby Digital or standard DTS because they use a higher bitrate to encode the audio track. As a result, you'll get a fuller range from your speakers & it'll be a lot crisper & as your friend mentioned, sometimes you'll be able to pick up extra effects which aren't as noticeable on DVD. Your Blu-ray player & sound system need to be able to accept these formats otherwise you'll only hear the same as you would from a DVD.

Edit: I don't know about Stateside HDTV, but over here, some channels are broadcast in Dolby Digital 5.1 so they're just the same quality as a DVD.

Last but not least:

Even standard DD 5.1 has in most cases a higher bitrate than on DVD. (DVD: 384kpbs or 448kbps, BluRay: 640kbps)

And my "lossless" in Mithi's post, that means "no data was lost".  It's possible to have the exact same sound track as in the theater (minus the 20 speaker split of course ).

Quoting Stephendl:

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Suffice to say BD has the capacity to sound much better that DVD or HD broadcasts due to higher bitrate availability - is it true in all cases? almost certainly not.

That is it in a nutshell.  As much as I love my DTS-HD, Dolby True HD, Yamaha receiver, I can't tell the difference between bluray audio tracks and DVD DTS tracks.  Each sounds just as good as the other to me (assuming both are correctly mastered).  I fully understand the additional compression inherent in the limited space on a DVD, but to my less-than-audiophile ears, I cannot hear the difference.  If I blast a DTS DVD on my 5.1 setup, it sounds glorious.  I can distinctly hear helicopters coming at me from behind the couch, and street racers revving their engines in the kitchen.  I have more than once thought someone was trying to break in during a horror movie when the surround channels were the only ones emitting sounds behind my chair.  If I blast a bluray on the same 5.1 setup (the receiver supports 7.2, but I have it setup for 5.1), it sounds just as grandiose.  What can I say?  Maybe Bach could hear the difference, but I can't. 

With Dolby Digital 5.1, for whatever reason, the exact same volume setting sounds a little more hushed than DTS, so that is a distinct difference (of course, then I just turn it up).  As for TV, I have given up on TV.  I'll try Over-the-air digital sometime this year, but the maxxed out compression, frequent digital noise (little square blocks), and pretend dolby digital of cable TV was just too painful to bear.

R.

When I just use my TV, I don't really hear the difference except perhaps that the lossless tracks are a bit more powerful, so to speak.

When pushing it through an Onkyo TX-SR607 with Bowers & Wilkins MT-25 home theater speakers & woofer (roughly 2.000 euro worth of setup), I most definitely hear a difference.

Quoting Ken Cole:

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Quoting Taro:

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When I just use my TV...

TVs have speakers?   

Yes! They do! ... one on each side no less! 

Quoting trondmm:

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Quoting Taro:

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Quoting Ken Cole:

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Quoting Taro:

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When I just use my TV...

TVs have speakers?   

Yes! They do! ... one on each side no less! 

Mine doesn't.

nor mine!

we have a Meridian 5.1 surround system, 3 DSP5000s across the front with M20s at the back and a M1500 sub driven from 562V/518/565Z3 electronics

Yeah, it's true some TV's don't have speakers. Mine does and were useful when I didn't have my home theater setup. Now that I do, I never use those speakers anymore and in retrospect, I should've bought a HT + HDTV at the same time and got a model without side speakers. The same size of TV has a bigger screen then thanks to the space saved by the exclusion of speakers. Something I'll need to remember for our next TV purchase!