I prefer digital over physical for convenience. However, the pricing is not competitive yet for digital over physical. Here's a comparison of a $60 new release pricing:
$60 new release bought digital = $60
$60 new release bought at Amazon with 20% Prime discount = $48
$60 new release bought at Best Buy with GCU + $10 pre-order discount (available on some games) = $38
Additional step for physical games: After 1-2 weeks, complete the game and resell it used on Amazon or eBay gaining back ~$40-$45 after fees recouping almost all of the cost of the game. This is how I afford to pick up most new releases.
I definitely prefer the ability to launch a game right away off my drive without changing discs and to not take up space with physical copies of games but right now there is just not enough price incentive for me to switch to all digital.
My situation is somewhat unique though since I churn through games for Achievements and Trophies as well to capture gameplay for Youtube videos. There are of course games that I know I will be putting tons of hours into which I will hold onto or wait 6 months after their release to pick up for $10-$20.
That covers new releases. For retro games, I have slowly been selling off my old collection of games. Unfortunately, they just take up too much space and we have seen a huge increase in prices for games as more collectors enter the market. I also just can't trust the physical version of any game that saves data due to potential data loss on physical copies. I feel crappy doing it, but almost all my retro gaming is done now through emulators. Also, sites like http://www.retroachievements.org
are fantastic for encouraging replaying older games in new ways.